(Reuters) – Rising bond yields, rising energy prices and growing worries about China’s recovery are sapping investors’ appetite for risk after months of rising stock markets.
The MSCI All Country World Index is down almost 6% from its recent highs, although it remains up 10% on the year. The S&P 500 index is down around 5% this month, as is the European STOXX 600 index. The Nikkei has lost just over 5%.
Here are five points of attention in the markets:
One of the biggest concerns for investors is soaring bond yields amid growing indications that growth is stronger than expected in some developed economies, which could force central banks to keep rates high for longer. than expected by the markets.
Yields on the 10-year U.S. Treasury note hit their highest level since October on Thursday, while U.S. real yields are near their highest level since 2009.
Real yields rose elsewhere in the world as well, with the British 10-year yield hitting its highest level since last October on Thursday.
However, higher bond yields are making equities less attractive as valuations have soared in many countries.
Sovereign yields also serve as a benchmark for many other rates, and their rise increases the cost of capital: US mortgage rates jumped this month, with the 30-year fixed rate reaching its highest level in more than 21 years old.
Rising yields also supported the dollar, which is up about 4% from recent lows against a basket of currencies. A stronger dollar could weigh on US exporters and multinationals, which need to convert their profits into their local currency, as well as emerging economies, as it will be harder for them to service dollar-denominated debt .
Rising energy prices raise fears that the inflationary crisis is not yet over, although price pressures have eased.
Gas prices in Europe jumped 36% in August, poised for their strongest monthly advance since November, while oil prices are not far from nine-month highs. Signals from energy markets, one of the drivers of inflation and shifts in inflation expectations, mean that price pressures remain elevated, heightening fears over policy rates holding steady at their current levels for longer than expected.
In Europe, 5-year inflation swaps 5 years ahead remain well above the European Central Bank’s 2% inflation target, while wages in Britain have risen at their fastest pace for at least two decades.
Rising bond yields, falling equities and rising dollar are all contributing to a rapid tightening of financial conditions, heightening investor concerns.
Financial conditions reflect the availability of finance in an economy.
Since the start of August, the US Financial Conditions Index (FCI), compiled by Goldman Sachs, has tightened by 50 basis points to just under 100 points, its highest level since May. and which corresponds to its long-term average. Goldman Sachs has previously shown that a 100 basis point rise in financial conditions slows growth by one percentage point in the coming year.
Still, U.S. financial conditions are significantly more accommodative than the peak reached last fall, when the index was nearly 100 basis points above current levels, according to Goldman data.
The unprecedented debt crisis in China’s real estate sector, along with a series of indicators that signal the slowdown in the world’s second-largest economy, is also weighing on investor sentiment, which fears contagion beyond China’s borders. .
Real estate accounts for about a quarter of China’s economy, which is already suffering from sluggish domestic consumption, faltering industrial activity, rising unemployment and weak demand for its exports. The country’s shadow banking sector, heavily exposed to real estate and representing 2.750 billion euros, is already in trouble.
Hong Kong’s benchmark index and the Chinese currency are both at their lowest level since November, adding to market concerns.
A major recovery plan would change the situation, but nothing has been announced yet.
(Reporting Yoruk Bahceli, Alun John, Dhara Ranasinghe, Lewis Krauskopf, graphics by Vincent Flasseur; French version Corentin Chapron, editing by Kate Entringer)
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