Stocks extend selloff, Treasury yields retreat from near 4-yr highs

Stocks extend selloff, Treasury yields retreat from near 4-yr highs

Stocks were pummeled on Friday and Monday. Another risk is the potential for monetary policy disruption as the Federal Reserve (Fed) gradually tries to normalize. Non-farm payrolls data released by US Labor Department data on Friday showed that it rose to 200,000 in Jan, more than the average estimate of economists. We all need to adjust our expectations: On the upside, we'll hopefully see higher wages for many Americans.

Shares sank more than 1 percent from Tokyo to Sydney, while S&P 500 Index futures were 0.6 percent lower.

The yield on 10-year Treasuries rose 1 basis point to 2.85 percent, after climbing five basis points on Friday. Early on, it fell 355 points.

Signs that USA inflation is edging up have raised some traders' expectations that the Federal Reserve may hike interest rates four times this year. Investors should bear in mind that almost a quarter of government bonds are still negative yielding and more than 90% of bond globally still yield less than a 10 year Treasury, so the demand for yield should naturally act as a constrain on surging yield levels. The 8.5 percent drop in the S.&P.

7-year -10 bps @ 2.665%.

The next move by the Bank of England on interest rates is likely to be up.

And how much is simply holding up an asset bubble - frothy prices led ever higher in an era of ultra low interest rates and cheap money.

The financial.SPSY, healthcare.SPXHC and industrial.SPLRCI sectors fell the most, but declines were spread broadly as all major 11 S&P groups dropped at least 1.7 per cent.

In fact, the ratio for January was at its highest level since mid-2001, when the dot-com bubble was mid-pop. In Japan, stocks were down more than 5 percent in morning trading, while shares in Hong Kong were down more than 4 percent. The market hasn't gone through a 10 percent drop since early 2016, when oil prices were plunging as investors anxious about a drop in global growth that would hurt demand. In reality, the US economy is doing very well right now.

Qualcomm (QCOM.O) fell 2.3 percent after Broadcom (AVGO.O) raised its offer to buy the chipmaker.

It grew at an annual pace of 2.6 percent last quarter. Intel gained 65 cents, or 1.4 percent, to $46.80.

The U.S. economy also still looks in good shape.

US crude CLc1 fell 1.99 percent to $64.15 a barrel, while Brent LCOc1 fell 1.4 percent to $67.62. Even with last week's losses, the index is still up 3.3 percent in 2018. This week Walt Disney, General Motors and Tesla are scheduled to report their quarterly results. Some of the largest losses went to companies that have done exceptionally well over the a year ago.

Tech firms were hit early on after Apple and Google parent Alphabet lost four percent following disappointing earnings reports.

So as bond yields keep on running up and equity markets continue to fall, you are getting whacked on both sides. Germany's DAX index dropped 1.7-percent, while France's CAC 40 Index declined 1.6-percent. Finally, it tends to support higher commodity prices.

In the several months leading up to Friday's sell-off, rates on 10-year government bonds had been creeping up.

The dollar was boosted by the jobs figures and on Monday managed to hold on to the gains it made against the yen, pound and euro. But the relationship between breakeven inflation and the oil price has shifted over the past 14 months, as we see in the chart below.

The pound fell 0.1 percent to $1.4109. Many financial pros warn that bitcoin is in a speculative bubble that could burst anytime.

One of the changes that one would have thought would have induced the Fed toward a more aggressive monetary policy stance than it has been pursuing has been the strong increase in US stock market prices. In all these years, we've had four official corrections, so not many, but we have also had 60 "panic attacks", as Yardeni likes to call them.



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