Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
World markets are roiled today as a surge in government bond yields triggered a sea of red across on Wall Street.
Sovereign bond prices fell across the board yesterday, driving up the yield (or interest rate) on the bonds. There were striking moves in the US, where the 10-year Treasury bond yield jumped to 1.5% for the first time in a year.
The bond selloff suggests investors are anticipating that the economic recovery this year will push up inflation, especially with the Biden White House planning a new $1.9trn stimulus drive.
That could force central banks to tighten monetary policy, ending the money-printing stimulus packages which have helped markets recover from last March’s crash.
Last night, the tech-centred Nasdaq plunged by 3.5% – it’s worst day since October – with the Dow sliding 1.75% from Wednesday’s record high.
Asia-Pacific markets have slumped overnight, and we’re expecting losses in Europe this morning. The FTSE 100 index of blue-chip shares in London is on track for a 1%+ fall.
One alarming thing about the selloff is that Federal Reserve chair Jerome Powell spent two days testifying to Congress this week, insisting that the Fed wasn’t about to end its stimulus.
The markets, though, are certainly edgy – ditching riskier assets and shifting back into save havens like the US dollar.
The selloff came after some encouraging US economic data – jobless claims fell last week, while durable goods orders rose by 3.5% in January. That, though, seems to have intensified worries about potential interest rate rises.
Ipek Ozkardeskaya, senior analyst at Swissquote, explains:
Investors dropped their sovereign bond holdings like a hot potato as all new piece of data pointed at improvement in economic conditions and called for rising inflation.
Equities dived along with the sovereign bonds. Nasdaq led losses with a sizeable 3.52% drop as tech stocks fell big as a result of a mass migration from growth to value stocks. Nike, Caterpillar, Johnson & Johnson and Goldman Sachs were among the rare stocks finishing the session higher. Apple, Microsoft and Disney fell, as Tesla shed 8%.
So it could be a lively day….
- 12.30pm GMT: Bank of England deputy governor Dave Ramsden: Speech at the Institute of Chartered Accountants in England and Wales
- 1.30pm GMT: US Personal consumption expenditure data for January
- 3pm GMT: University of Michigan survey of US consumer confidence