Stock markets slide again and bond yields rise again. Bank of England surprises markets. Fed officials brush off concerns, says sell-off "small potatoes"

By Nick Smyth

Stock markets are lower overnight and US Treasury yields higher, and markets remain reasonably volatile. 

The Bank of England surprised markets by saying it expected to raise interest rates earlier and faster than previously thought.  The USD continued its recent mini resurgence and is up against most of the major currencies (the GBP being one exception). 

US stock markets remain in focus after the huge moves earlier this week.

After recovering over the past few days, the S&P500 is around 2% lower today.  European stock markets were weaker as well, with most bourses down over 2%.

Overnight, there was more positive news on US corporate earnings, with Twitter beating analyst expectations (78% of US corporates have now beaten expectations this earnings season).  Market commentators blamed the weakness in US stocks to a renewed rise in US Treasury yields; the 10 year yield rose back to 2.88% earlier in the session, although it has fallen back around 4bps.  It will probably take some days yet before market volatility settles down. 

There was no obvious trigger for the rise in 10 year Treasury yields from 2.80% yesterday morning to 2.88% a few hours ago (it has since fallen back a little).

More Fed officials brushed off the recent bout of market volatility last night including Philadelphia Fed President Harker who said it hadn’t changed his economic outlook and noted that broader financial conditions were still highly accommodative.

That was echoed by NY Fed President Dudley who described the stock market sell-off seen to-date as “small potatoes”.  Dudley added that four hikes this year were possible if the economic outlook strengthened.

Given the market’s growing anxiety about potentially higher US wage and price inflation, the release of US core CPI next week will be a major focus. 


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5 Comments

For all you youngsters under the age of 30 reading this article ............ back in the day we called this the start of a BEAR market .

What happens is that ASSET PRICES ACTUALLY FALL .

Yes , thats right , asset prices fall

I know , I know .......... you have never seen this before , but fear not , its quite normal .

... print more munny !!! ....crank up the presses ... fire up the helicopters ....

PRINT dammit ..... PRINT !!!!!!!!!!!!!

A good euphemism is a correction or even better an overdue correction. Greatest fear may though be debt. How much of the money go round is negatively geared, and if some of those investors are caught short on a long position, and panic, and sell, sell, and sell again. Well now what does that mean.

All the more reason to buy another house or two in Orc Land ..

.. because of course , this sort of thing never happens to house prices ... only stocks and bonds are risky , only they go down ...

You can't lose with property , mate !

Yep overall history confirms what you say, not in every country to be sure, but true enough for NZ for a long long time now.Even the good Dr Brash had to finally concede that and eventually buy a house himself. Demand exceeding supply, could be that it as simple as that. And then recall we had the august Dr Cullen bemoaning NZ’drs dependence on the property market when they should be into shares. Only some days later his protégée Cunliffe collapsed & gutted the Telecom share price. Go figure.