Global shares have slid as strains in sovereign bond markets were aggravated by a jump in oil and gas prices and reports that some major tech firms were seeking to raise billions in debt in direct competition for limited funding.
Europe saw renewed selling of French and other heavily indebted countries’ debt plus a near three-month low for the region’s shares early on as a trio of European Central Bank policymakers also issued fresh inflation warnings.
Oil prices were up nearly four per cent amid an increase in attacks on shipping in the Gulf, adding to the bond jitters despite a strong auction of US 10-year debt on Wednesday that had pulled back benchmark Treasury yields from 24-year peaks.
While lofty yields underpinned the dollar, the euro struggled near a 17-month low as the concerns over France’s finances continued to spread to Italian and Greek debt, as well as parts of the banking sector.
“Markets are going to be watchful if that contagion continues,” said Kiran Ganesh, a multi-asset strategist at UBS Global Wealth Management.
“At this stage, the markets would be most comforted by monetary intervention,” he said, referring to the ECB buying bonds to ease the strains.
“But I think what we learned in the euro zone crisis in 2011, is that monetary authorities will turn to the fiscal authorities first to get their house in order.”
The steady climb in borrowing costs put equities on the defensive.
The pan-European STOXX 600 on Thursday was down one per cent at its lowest since June, while a similar fall from France’s CAC 40 in Paris left it down more than 12 per cent from an August record high.
In Asia, Japan’s Nikkei shed 1.4 per cent, South Korea slumped 2.6 per cent, while Wall Street futures had the S&P 500 and Nasdaq pointing to a modestly lower start.
In commodity markets, Brent futures rose back above $US104 a barrel in their biggest jump in a month, while US crude futures added 3.2 per cent to $US91.43 a barrel.
The Wall Street Journal added to media reports that SpaceX, Broadcom and Oracle were looking to raise money to buy AI chips.
Broadcom was looking for $US50 billion ($A72 billion) in financing, while SpaceX was planning to issue $US30 billion in investment-grade debt and raise $US10 billion in loans to buy chips from Nvidia, which is a major shareholder in SpaceX.
All this corporate debt comes at a time when sovereign bond markets are being sorely tested by inflation fears, ever-widening budget deficits and rising cash rates.
Minutes of the Federal Reserve’s last meeting released on Wednesday showed “most” members considered another rate hike likely by year-end, though they would approach each meeting with an open mind.
The prospect of a pause in tightening helped keep two-year Treasury yields at 4.80 per cent, while 10-year yields crept up to 5.33 per cent in European trading, having hit a 24-year top of 5.36 per cent overnight.
Strains in the French bond market led Bank of France head Emmanuel Moulin to acknowledge the country’s economic situation was serious, but said it did not need help from the European Central Bank.
Investors reacted by offloading the euro, which was pinned at $US1.1185 after having lost 0.6 per cent on Wednesday.
A break of the recent low at $US1.1161 would risk a retreat to $US1.1065.
The dollar was the main beneficiary of the single currency’s woes and its index rose to 102.34, near an 18-month peak.
It was steady on the yen at 158.22, with the Japanese currency protected by the threat of intervention.
Gold managed a modest 0.6 per cent bounce to $US4,136 an ounce.
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