LONDON: Investors pushed US government bond yields to an all-time low and the yen sharply higher on Tuesday, as soft data from China added to worries about the impact of Britain’s vote to leave the European Union.
As a fresh wave of uncertainty ripped through markets, Swiss bond yields turn negative all the way out to 50 years on bets that the world’s major central banks will have to wade in with yet more stimulus.
European shares lost more than 1 percent in early trade, with China’s data hitting commodity-linked firms and the banking sector dented by worries over a near 60-percent slump in Italian bank shares this year.
The safe-haven yen rose almost one percent against the euro and dollar, while Brexit-battered sterling hit another 31-year low after soft UK economic data.
“Everything is still being driven by one main factor and that is that central banks still have their taps on,” said Neil Williams, chief economist at fund manager Hermes
“It seems to me that Brexit has global implications … and when an 11-trillion-dollar economy (China) which accounts for a large chunk of the world’s commodity demand slows down, you have to take notice.”
The overnight data from China had shown that while the country’s growing services sector saw activity rise to an 11-month high in June, a composite measure of activity including manufacturing fell to a four-month low.
Nervousness was also seeping back in about Beijing’s intentions for its currency, the yuan, as the country’s central bank fixed its daily yuan/dollar reference rate at a fresh 5-1/2-year low.
Uncertainty in the run-up to Britain’s vote on its EU membership last month meanwhile had already seen growth in its dominant service sector hit a three-year low and pushed businesses expectations to their weakest since the end of 2012.
The UK Conservative government holds the first round of a contest to find a new leader on Tuesday in the wake of last month’s Brexit vote.
“A further slowing, and possible contraction (of UK economy), looks highly likely in coming months as a result of the uncertainty created by the EU referendum,” said Chris Williamson, chief economist at Markit, which compiles the UK PMI survey. “More policy action is therefore likely in the coming weeks.”
Sterling hit new 31-year low of $1.3112 as it fell 1.3 percent on day after the data.
The euro slid 0.2 percent to $1.1130, but retained most of the gains made since its 3 1/2-month low of $1.0912 hit in the wake of the UK referendum, while the yen jumped 0.8 percent as it slice back above 102 to dollar to 101.79.
The ‘risk-off’ sentiment was further compounded as oil fell below $50 a barrel on Tuesday, as concern about a potential slowdown in economic growth that would weigh on demand trumped supply outages in Nigeria and other exporting nations.
Brent crude was down $1.04 at $49.06 a barrel and U.S. crude dropped $1.28 at $47.71 a barrel.
Key industrial metal copper slipped for a second consecutive session to as it continued a retreat from a two-month peak, while despite the safe-haven rush in most other markets gold and silver also fell.
Spot gold was down 0.5 percent at $1,343.76 an ounce as of 0925 GMT having flirted with a two-year high on Monday, while silver fell more than 3 percent at one point having topped $21 an ounce for the first time in two years in the previous session.
“The question is, will monetary easing make any real difference to growth?” Frederic Neumann, co-head of Asian economics research at HSBC, wrote in a note.
“Central bankers may certainly do whatever they can, but the heavy lifting should fall on the shoulders of fiscal authorities.”
Copyright Reuters, 2016
Courtesy : BRecorder