Shares stumble as US yields rise; pound flat after BoE hike

By Lawrence Delevingne and Tom Wilson

(Reuters) – World share markets stumbled on Thursday as U.S. bond yields hit nine-month peaks, with the dollar shrugging off a U.S. credit downgrade to hit a four-week high and the British pound flat after an initial drop on the Bank of England raising rates.

Wall Street added to a wave of selling a day earlier, with the down 0.27% to 35,186, the 0.31% lower at 4,499 and the dropping 0.12% to 13,956.00.

Pressuring stocks were mixed earnings, a climb in long-term U.S. Treasury yields after stronger-than-expected private employment data, and the announced refunding of the U.S. government’s maturing debt.

U.S. 10-year yields hit a new nine-month peak of 4.17%, while 30-year yields rose to a fresh nine-month top, up 11.9 basis points to 4.284%.

That helped the dollar stay buoyant near a one-month high at $102.450 against major peers. The strong private payrolls data added to signs of U.S. labor market resilience, with the nonfarm payrolls report due on Friday. [FRX/]

Investors also digested new U.S. Labor Department data on Thursday showing that the number of Americans filing new claims for unemployment benefits rose slightly last week, while layoffs dropped to an 11-month low in July. The government also said that U.S. worker productivity rebounded sharply in the second quarter, another boost to the improving inflation outlook.

EURO SHARES DOWN

European shares slipped 0.8%, bruised by disappointing earnings reports and elevated U.S. bond yields, putting them on course for their third straight day of losses.

UK shares, however, initially ticked higher after the Bank of England raised its key interest rate by a quarter of a percentage point to a 15-year peak of 5.25%. The index was last down 0.6%.

Sterling was last trading flat after falling as much as 0.7% following the BoE move.

The BoE decision was closely watched for clues on how central banks globally will balance taming inflation and maintaining growth. The BoE’s monetary policy committee (MPC) was split on the size of the rate hike.

“This split does leave a sense that the MPC itself is uncertain over what to do,” said Stuart Cole, chief macro strategist at Equiti Capital, “and indeed of how much of a danger the UK economy is at risk of being tipped into recession as monetary policy is tightened ever further.”

APPLE, AMAZON AHEAD

Investors were awaiting earnings results from Apple (NASDAQ:) and Amazon (NASDAQ:) that may give clues on whether the tech sector’s sky-high valuations are justified.

Apple is expected to report the largest third-quarter drop in its revenues since 2016 as iPhone sales slow.

Amazon, a bellwether for consumer spending, is expected to report a more than 8% rise in second-quarter revenue, aided by a recovery in the advertising and e-commerce businesses.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%, extending losses after a drop of 2.3% a day earlier.

Still, Chinese blue chips rose 0.9% after a private survey showed China’s services activity expanded at a faster place in July.

Analysts at Morgan Stanley (NYSE:) downgraded China shares to equal weight, given the still-negative earnings revisions and weak return on equity and profit margins.

OIL UP, GOLD STEADY

Oil gained after dropping sharply from more than three-month highs in the previous session after Saudi state news agency SPA said that the country will extend a voluntary oil output cut of 1 million barrels per day for another month to include September.

rose 1.74% to $80.87 per barrel and was at $84.46, up 1.51% on the day.

Gold was steady after data showing a deterioration in euro zone business activity triggered some safe-haven inflows, but bullion held near three-week lows on a stronger dollar and higher bond yields.

ticked up 0.2% to around $1,938 an ounce, held in check by a robust dollar and elevated bond yields.