A gauge of world stock markets fell for the first time in five sessions and bond yields rose on Tuesday, as uncertainty grew over the mix of stimulus the European Central Bank will add to boost a slumping economy this week amid fresh signs global growth was slowing.
Germany’s 30-year benchmark bond yield briefly broke into positive territory for the first time since Aug. 5, while U.S. Treasury yields climbed to three-week highs.
Benchmark U.S. 10-year notes last fell 21/32 in price to yield 1.6936 per cent, from 1.622 per cent late on Monday.
The bond moves come as market participants look towards Thursday’s ECB meeting, which is widely expected to deliver a cut to interest rates and point to further bond-buying stimulus.
However, concern has been mounting that ECB policymakers and other global central banks are nearing the limits of stimulus policies, especially those with negative interest rates and sub-zero long-term sovereign bond yields.
“The real fulcrum event is the ECB meeting and that will drive Bunds, which in turn, have had a massive influence on Treasuries over the course of the last eight weeks or so,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
The U.S. Federal Reserve is also widely expected to cut interest rates next week as policymakers attempt to protect the global economy from risks, such as Britain’s exit from the European Union.
Canada’s main stock index finished slightly on Tuesday as technology stocks slipped on worries of a global economic slowdown reignited after downbeat China data, but losses were limited by a rise in energy shares.
The Toronto Stock Exchange’s S&P/TSX Composite index was unofficially up 42.25 points, or 0.26 per cent, at 16,537.34.
The technology sector slipped more than 2.6 per cent, the biggest decliner among the 11 major sectors.
Shares of Shopify Inc. and Kinaxis Inc. were among the top decliners on the tech index, falling 6.2 per cent and 2.8 per cent, respectively.
Fears of a slowdown were revived after factory-gate prices in China shrank at the sharpest pace in three years in August, falling deeper into deflationary territory and reinforcing the urgency for Beijing to step up economic stimulus as the trade war intensifies.
Keeping a check on losses was a 3.2-per-cent rise, while the materials sector reversed early losses to trade 0.2 per cent higher.
Leading the index were SNC-Lavalin Group Inc., up 12.4 per cent, Hudbay Minerals Inc., up 6.9 per cent, and Secure Energy Services Inc., higher by 6.3 per cent.
Lagging shares were Kirkland Lake Gold Ltd., down 5.2 per cent, and Restaurant Brands International Inc., lower by 4.2 per cent.
Data showed Canadian housing starts unexpectedly rose in August compared with the previous month as ground breaking increased on single detached urban homes.
On Wall Street, the S&P 500 ended flat on Tuesday as a rally in energy and industrial shares countered a drop in the technology and real estate sectors as investors favored value over growth stocks.
The Dow Jones Industrial Average rose 73.92 points, or 0.28 per cent, to 26,909.43, the S&P 500 gained 0.96 points, or 0.03 per cent, to 2,979.39 and the Nasdaq Composite dropped 3.28 points, or 0.04 per cent, to 8,084.16.
European shares edged higher, as the rise in bond yields helped boost bank shares by more than 2 per cent, putting them on track for a fifth day of gains. The bank index is up nearly 9 per cent over that span, its best five-day performance since April 2017.
The pan-European STOXX 600 index rose 0.10 per cent, while MSCI’s gauge of stocks across the globe shed 0.15 per cent.
Germany’s DAX rose after Finance Minister Olaf Scholz said the country was ready to inject “many, many billions of euros” into the economy to counter any economic downturn.
The export-heavy German index was also aided by a Reuters report that Bank of Japan policymakers are now more open to discussing the possibility of expanding stimulus at their Sept. 18-19 board meeting due to the broadening fallout of the U.S.-China trade war.
In currencies, the dollar strengthened but held in a tight range ahead of the ECB meeting, while sterling steadied as investors looked for clarity on the Brexit situation as several British lawmakers launched a new group on Tuesday to bolster efforts to secure a deal to leave the European Union.
The dollar index rose 0.09 per cent, with the euro down 0.05 per cent to $1.104.
Sterling was last trading at $1.2342, down 0.02 per cent on the day.
Oil prices edged lower on Tuesday after U.S. President Donald Trump fired national security adviser John Bolton, the chief architect of Trump’s strident stance against Iran, raising speculation of a return of Iranian crude exports to the market.
Saudi Arabia’s new energy minister’s assurances of continued output cuts by the Organization of the Petroleum Exporting Countries and its allies, however, supported the market.
Brent settled at $62.38 a barrel, shedding 21 cents, while U.S. West Texas Intermediate (WTI) futures finished 45 cents, or 0.8 per cent, lower at $57.40 a barrel.
Trump abruptly fired Bolton amid disagreements over how to handle foreign policy challenges such as North Korea, Iran, Afghanistan and Russia.
“The market took that as a sign that the Trump Administration may become less hawkish on Iran, open the talks and the possibility of the return of Iranian oil,” said Phil Flynn, an analyst at Price Futures Group in Chicago.
Iran’s crude oil exports were slashed by more than 80 per cent due to re-imposed sanctions by the United States after Trump exited last year Iran’s 2015 nuclear deal with world powers. In May, Washington ended sanction waivers given to importers of Iranian oil, aiming to cut Tehran’s exports to zero.
Reuters