Oil prices nudge upwards as yields on government bonds rise
US and European stocks are firmer, while yields on government bonds are nudging higher, as China growth concerns fade and investors turn their focus back to the prospects for central bank policy.
Japan’s Nikkei 225 fell 0.8 per cent and China’s Shanghai Composite lost 1.4 per cent as much of Asia reacted badly to Wall Street’s 1.1 per cent slide and falls for many commodity prices on Tuesday.
That risk asset pullback followed some poor China trade data that raised fears global growth was slowing faster than expected. The International Monetary Fund warned the world faces a growing “risk of economic derailment” and needs immediate action to boost demand.
But the wobble, which came after a strong rally of late for many bourses and raw materials, notably oil, seems quickly to have run its course.
The opening bell in New York on Wednesday sees Wall Street celebrating the bull market’s seven-year anniversary and the S&P 500 recovering 0.4 per cent to 1,987.
Meanwhile, the pan-European Stoxx 600 index, which lost 1 per cent in the previous session as miners saw some chunky profit-taking, is back up 1.1 per cent.
Brent crude, which on Tuesday retreated 2.9 per cent from a three-month high, is up 1.9 per cent to $40.42 a barrel. Base metal prices are mostly firmer.
As appetite for risk picks up so demand for haven assets wanes. Gold is down $16 to $1,245 an ounce and the Japanese yen is 0.2 per cent softer at Y112.79 per dollar.
Government bond prices are lower, forcing up yields. A notable mover is the Japanese 30-year note. Its yield plunged more than 20 basis points on Tuesday after an auction of new paper saw strong demand.
But the 30-year is back up 24bp to 0.72 per cent, suggesting the previous session’s action – that so rattled the broader market – was somewhat of an aberration.
JGB yields remain at historically low levels, however, as the Bank of Japan continues its stimulus measures that include financial asset purchases and negative interest rates.
And another central bank expected to move interest rates further into the red in an attempt to support growth by boosting lending is the ECB, which will deliver its latest policy decision on Thursday.
The ECB’s strategy is also suppressing yields, and the two-year and 10-year German government bonds are offering minus 0.53 per cent and up 5bp to 0.23 per cent, respectively.
Equivalent maturity US bonds are yielding 0.90 per cent and up 4bp to 1.87 per cent on the day, as the market bets the Federal Reserve may raise borrowing costs again at least once this year.
This extra income from US paper has been underpinning the dollar and it is gaining 0.6 per cent versus the euro, which is changing hands at $1.0945.
The buck is up 0.1 per cent versus the Canadian dollar to C$1.3419 ahead of the Bank of Canada’s policy decision, due this afternoon. Analysts expect the BoC to leave rates at 0.50 per cent but are wary lest it says anything about recent strength in the commodity-sensitive loonie.
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