US yields and dollar rose on Friday, but the value of shares declined. U.S. Treasury rates remained close to multiyear highs as markets continued to expect the Federal Reserve to continue tightening. This caused shares to decline and the dollar to rally, especially against the yen, against which it reached a record 32-year high.
The benchmark U.S. 10-year yield increased by about 10 basis points overnight and reached a high of 4.291%, its highest level since June 2008.
The STOXX index in Europe fell 1.3% while the S&P500 futures in the United States fell 0.6%, .And also, the MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.92%. It was still hovering around the intraday low it reached the day before after two and a half years.
“It’s all so tenuous. The issue is that the macroenvironment is still challenging”, said Shane Oliver, chief economist at AMP Capital. He continued by stating that investors who see possibilities and those who are focused on the challenging background are engaged in a tug-of-war in the market.
Investors’ concerns that significant rate hikes will send major countries into recessions before inflation is controlled and that the stronger currency that will result will have a disastrous impact on developing markets have contributed to the extraordinary volatility of the global markets.
While U.S. economic data showed continued labor market tightness, Philadelphia Federal Reserve President Patrick Harker said on Thursday that the central bank will “keep hiking rates for a while.”
Corporate profits for the third quarter haven’t done much to boost stocks. Adidas shares fell 10% on Friday as the German sporting goods manufacturer lowered its full-year forecast, citing poor demand.
European retail shares fell 3.8%, which was further impacted by data released on Friday revealing that British consumers cut back on their spending more drastically than anticipated in September.
The currency markets, where the dollar surged about 1% to a new 32-year peak against the yen of 151.59, also felt higher U.S. yields
In a note to clients, Francesco Pesole, foreign exchange strategist at ING, stated that the current rate environment “continues to (cast) doubts (on) the sustainability of any rebound in equities, and chances that the dollar would receive more safe-haven flows are increased.”
