Today’s markets: Yields up, shares down

Shares are down across the board this morning as the downward spiral that started somewhat in New York and carried on in Asia overnight, makes its way to Europe. Bond yields are up as traders worry about inflation, and whether it’s really under control and if we’ll ever see rate cuts, after some interesting words from a Federal Reserve member.

In London, the FTSE is down 0.15 per cent but things are worse on the mainland with the Cac down 0.7 per cent and Dax 0.5 per cent. It’s interesting that bond yields and rate cut fears are causing angst among European share prices given the central bank is still odds on to the first major one to cut rates next week. Overnight, the Hang Seng dropped a huge 1.8 per cent with tech stocks and property companies the main culprits. In New York, the Dow dropped 0.6 per cent and the S&P was flat, with Nvidia rising after Elon Musk’s AI startup xAI raised $6bn from investors to build a supercomputer on the back of Nvidia’s technology.

So the bond sell off, what’s going on? The US 10-year has risen 0.1 percentage points to 4.564 since Tuesday while the two-year is as high as 4.989 per cent, up from 4.957 per cent at the start of the week. Yields, particularly in the US, have of course been climbing for some time as data prints and comments from Fed members pushed back hopes of a June rate cut. Yields are now as high as they have been in six months bar a little spurt at the end of April when the two-year went briefly past 5 per cent. What’s different, however, is that this is meaningfully bleeding into share prices. The UK two-year gilt yield has also risen from 4.457 per cent to 4.54 per cent this week with enthusiasm for UK companies waning this side of the bank holiday.

None of this was helped by Minneapolis Fed President Neel Kashkari suggesting policymakers haven’t ruled out increasing interest rates, especially if data doesn’t go their way. There’s more US data out on Friday which will help traders know if Kashkari’s comments are an outlier or whether there’s something to be worried out. Meanwhile, the European Central Bank is all set to cut next week but expectations for a second cut are being pushed back, in line with what we’re seeing with the Fed and the Bank of England’s first cuts.

Elsewhere, the oil price is on the rise again ahead of an Opec+ meeting and the usual geopolitical tensions and another attack in the Red Sea. Sunday’s meeting could herald an extension to production curbs for the rest of the year, leaving futures at around $84 per barrel.

Busy day in the London corporate world. Royal Mail owner International Distribution Services has accepted a £3.5bn offer from Czech billionaire Daniel Křetínský. It comes with some guarantees on the future of the postal service in the UK, but they don’t last forever. Jemma Slingo has more on that here.

Elsewhere, it’s deadline day for BHP to make a final offer for Anglo American, but also South African election day. The former had asked for an extension but the Anglo board has said no. It’s going to be an interesting day on that front. More on that here

The Trader is written by Taha Lokhandwala