Published: Sun, October 07, 2018
Economy | By

Dollar scales 11-month peak on yen as USA yields surge

Dollar scales 11-month peak on yen as USA yields surge

The increase in non-farm payrolls slowed in September, likely from Hurricane Florence's impact on restaurant and retail payrolls, but the U.S. Labor Department report also showed a rise in wages that could keep the Federal Reserve on track for more interest rate hikes.

"Rapidly rising Treasury yields are rocking equity markets around the globe, with high price-to-earnings tech stocks leading the decline", said Yasuo Sakuma, chief investment officer at Libra Investments.

Jeffrey Gundlach, chief executive of Doubleline Capital, told Reuters on Thursday that the 30-year U.S. Treasury bond yield has broken above a multi-year base, which should lead to significantly higher yields for financial markets.

The pan-European FTSEurofirst 300 index lost 0.86 percent and MSCI's gauge of stocks across the globe shed 0.67 percent. The benchmark 10-year government yield rose to 3.233 percent, up 3.8 basis points from late Thursday, but it had retraced some of those gains by 9:03 a.m. ET (13:03 GMT).

The CBOE Global Markets volatility index .VIX , known as Wall Street's "fear gauge", jumped as high as 15.84 points, its highest since August 15.

In addition, the yield on the 30-year benchmark note ticked up to 3.305-its highest since October 2014.

The Dow Jones Industrial Average .DJI fell 200.91 points, or 0.75 percent, to 26,627.48, the S&P 500 .SPX lost 23.9 points, or 0.82 percent, to 2,901.61 and the Nasdaq Composite .IXIC dropped 145.58 points, or 1.81 percent, to 7,879.51.

Gross is referring to the falling cross-currency basis, which has driven US 10-year yields to minus 0.06 percent for European investors and 0.09 percent for Japanese buyers who hedge against currency fluctuations through swaps, data compiled by Bloomberg show.

The only gainers among the 11 major S&P sectors were defensive utilities, which advanced 1.5 percent and real estate up 0.4 percent. The Japanese yen JPY= softened 0.1 percent versus the greenback at 113.98 per dollar.

On oil markets both main contracts edged down after serving up yet another sharp rise on Wednesday on the back of comments from US Secretary of State Mike Pompeo and White House National Security adviser John Bolten regarding Iran that exacerbated worries about a supply hit from the region.

Fears about Italy's finances pushed Milan stocks down 1.3 percent, while London's FTSE, Frankfurt's DAX and the CAC in Paris were off 0.95 to 1.4 percent. EMini futures for the S&P 500 also lost 0.4 percent in Asian trade, while European stocks opened down 0.6 percent.

USA crude futures settled at $74.34 per barrel, up 0.001 percent, and Brent settled at $84.16, down 0.50 percent for the day.

Oil prices have reached four-year peaks as the market focused on upcoming US sanctions on Iran while shrugging off the year's largest weekly build in USA crude stockpiles.

Prices have eased slightly after Saudi Arabia and Russian Federation said they would raise output to at least partly make up for expected disruptions from Iran, OPEC's third-largest producer, due to the US sanctions that take effect on November 4.

"As I have been saying, two consecutive closes above 3.25 percent on the benchmark 30-year Treasury means that my statement in July 2016 that we were seeing the low - I said italicized, underlined and in boldface - is now, looking at the charts, thoroughly corroborated", he said.

The combination of rising oil prices, borrowing costs and a climbing US dollar have also been rocking emerging markets, which tend to be vulnerable to all three.

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