World stocks flat after selloff as US borrowing costs hold below multi-year peaks

London — World stocks edged off eight-week lows on Wednesday as US long-dated borrowing costs held below multi-year peaks, though market gains were checked by fears for global economic growth and the possibility of an Italy-EU clash over budget spending.

The effects of the global bond selloff that took US 10-year bond yields to seven-year highs this week were exacerbated by economic growth concerns stemming from trade conflicts and oil at $80 a barrel, with the International Monetary Fund (IMF) cutting its world GDP forecasts for the first time in two years.

The IMF’s estimates for the US and China were both reduced, with the fund predicting the countries would feel the brunt of their trade war next year. It also slashed its expectations for emerging markets for 2019.

MSCI’s world equity index rose 0.14% after four days in the red. However, while Japan’s Nikkei and MSCI’s Asia-Pacific index outside Japan rose 0.2% to 0.3%, European shares slipped 0.2%, undermined by more bellicose rhetoric from Italian politicians.

Milan-listed stocks traded 0.15% higher, however, rising off 18-month lows hit earlier in the week. 

Wall Street was set to open flat to weaker, futures showed.

There are also concerns over China where the yuan slipped against the dollar for the fifth session out of the past six to approach four-year lows hit in August .

The focus is on next week’s semi-annual US report on currencies amid treasury officials’ comments that recent yuan depreciation has raised concerns in Washington. However, some relief came from US treasuries where 10-year borrowing costs kept well below a seven-and-a-half-year peak of 3.261%.

“We are at some sort of critical moment, a crossroads, for bond and equity markets,” Marie Owens Thomsen, global head of economic research at Indosuez Wealth Management, said, noting that while US 10-year yields at 2% unequivocally favoured equity investment, this was not so above 3%. “This January, we took out the 2% [yield] handle and now we are wondering if we are permanently taking out the 3% handle as well. That makes the climate for equities much more challenging.” 

She cautioned, though, that signs of deceleration in world growth and IMF forecast cuts could curb the relentless rise in yields which was partly fueled by buoyant US economic data.

Source: businesslive.co.za