London (AFP) – Stock markets rose on Wednesday and the dollar fell sharply after the US Treasury signalled action to push down government bond yields, easing fears that higher borrowing costs would weigh on economic growth worldwide. Oil prices again moved higher on doubts of any quick deal to reopen the Strait of Hormuz to tanker traffic, stoking the inflation fears that have rattled markets since the US-Iran war began nearly six months ago.
Those fears and worries about ballooning government deficits have sent bond prices falling— increasing the rates that investors demand to keep financing state borrowing. Higher interest rates are a particular threat to tech companies, which are borrowing massively to fund AI investments that have spurred momentum for stocks across the board. But the US Treasury surprised markets Wednesday by saying it would increase “by at least double” its sovereign bond buybacks to push down 30-year yields that have soared in recent days. Wall Street indices saw a tepid opening, then jumped on the news before giving up some gains.
European stocks closed broadly lower after tech-led selling on Asian equity markets. “The abrupt move lower in yields delivered a big boost to US equity markets, which had come under pressure from the rumble towards multiyear/decade highs for sovereign yields,” said Neil Wilson, a strategist at Saxo Markets. “I see it as a very strong sign that the Treasury has decided higher US yields are unacceptable,” he added. He noted that the dollar had fallen sharply on the news, since lower yields make holding greenback investments less attractive.
However, the risky cocktail of high inflation, hefty borrowing by AI titans such as Nvidia and Anthropic, and signs of slowing growth in the world’s biggest economy argued for caution. “Higher yields make bonds more attractive relative to shares while also raising borrowing costs and reducing the present value of future corporate profits,” said Susannah Streeter, chief investment strategist at Wealth Club. “The effect is particularly uncomfortable for highly valued technology stocks, where valuations are highly reliant on expectations for future earnings,” she said.
Oil prices continued to rise as the prospect of any Middle East deal dimmed after US President Donald Trump said he would not extend a 60-day truce with Iran. Analysts said US and Iranian officials appear prepared for an extended standoff, dimming hopes for an imminent reopening of the crucial Strait of Hormuz shipping route. That has also stoked inflation expectations that have helped send government debt costs soaring for countries around the world.
Official data Wednesday showed that UK inflation jumped to 2.9 percent in July, driven by higher energy bills. In Asia, South Korea’s Kospi index tumbled 5.8 percent as renewed worries about AI prospects saw chip titan SK hynix sink almost 10 percent and Samsung nearly eight percent. After the market close in Asia, SK hynix announced it would buy back a massive $29 billion worth of its shares in a bid to support its stock and settle investor nerves.
Elsewhere on the corporate front, US biopharma group Moderna saw its share price more than double after positive results for a key skin cancer vaccine being developed with Merck. Moderna’s stock was up 125 percent at around $140 in opening deals, while Merck was up 11 percent at around $150.
– Key figures at around 1545 GMT –
New York – DOW: UP 0.3 percent at 53,492.71 points
New York – S&P 500: UP 0.4 percent at 7,725.32
New York – Nasdaq: UP 0.4 percent at 26,393.44
London – FTSE 100: UP 0.1 percent at 10,743.35 (close)
Paris – CAC 40: DOWN 0.1 percent at 8,501.91 (close)
Frankfurt – DAX: DOWN 0.1 percent at 26,091.33 (close)
Tokyo – Nikkei 225: DOWN 3.2 percent at 65,326.42 (close)
Hong Kong – Hang Seng Index: UP 0.1 percent at 25,495.07 (close)
Shanghai – Composite: DOWN 2.4 percent at 3,894.42 (close)
Euro/dollar: UP at $1.1664 from $1.1577 on Tuesday
Pound/dollar: UP at $1.3607 from $1.3533
Dollar/yen: DOWN at 158.45 yen from 159.64 yen
Euro/pound: UP at 85.74 pence from 85.53 pence
Brent North Sea Crude: UP 1.4 percent at $92.26 per barrel
West Texas Intermediate: UP 1.5 percent at $85.29 per barrel
© 2024 AFP
