US 10-year yields at highest level since the financial crisis

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

US equities ended the day lower in a choppy trading session as the markets sifted through a host of earnings results as well as news of the sudden resignation of the UK’s prime minister. The economic calendar for the day came in heavy, with jobless claims moderating, manufacturing activity out of the Philadelphia region improving slightly but remaining contractionary, and the Leading Economic Index declining for six of the past seven months. Treasury yields gained ground but the US dollar paired some of its recent run, while crude oil and gold prices nudged lower. The Dow Jones Industrial Average declined 0.3%, the S&P 500 Index fell 0.8%, and the Nasdaq Composite was down 0.5%. In the meantime, European equity bourses closed out the day mostly higher as they reacted to the sudden resignation of UK Prime Minister Liz Truss.

Summary

• Asian equity markets mostly declined on Friday, pressured by surging global bond yields. Investors also assessed Japanese inflation data, which remained above the central bank’s target for the sixth month. Shares in Australia, Japan, South Korea and Hong Kong all fell this morning, while mainland China equities traded mixed following news of a potential relaxation of quarantine rules. 
• European shares are poised to retreat in line with US equity futures as Treasury yields held at their highest level since the global financial crisis. 
• Oil prices were near flat on Friday as market participants weighed concerns about steep inflation against optimism that China could see energy demand tick up. 
• US treasury yields were higher as the yield on the 2-year note increased 5 basis point (bps) to 4.61%, the yield on the 10-year note climbed 11 bps to 4.23%, and the 30-year bond rate rose 10 bps to 4.22%. 
• German producer prices rose 45.8% year-on-year last month, the largest increase ever recorded. However, on a month-on-month basis prices increased 2.3%, well below the 7.9% rise posted in August. Energy prices were the biggest contributor by a wide margin, up 132%.  
• Biden administration officials are discussing whether the US should subject some of Elon Musk’s ventures to national security reviews, including the deal for Twitter and SpaceX’s Starlink satellite network. US officials have grown uncomfortable over Musk’s recent threat to stop supplying Starlink satellite service to Ukraine and what they see as his increasingly Russia-friendly stance following a series of tweets that outlined peace proposals favourable to President Vladimir Putin. 
• American Airlines posted a big Q3 earnings beat as revenues rose by 13% from the same period in 2019. Looking ahead, the airline said it expects Q4 total revenue to be 11% to 13% higher versus the same period of 2019, on 5% to 7% lower capacity. As such, including the current fuel price forecast and excluding the impact of special items, the company said it sees an operating margin of between 5.5% and 7.5% in Q4. 
• Renault this morning said its quarterly sales rose to €9.8 billion, in line with analysts’ expectations as price increases allowed the firm to generate revenue growth despite a decrease in car sales from the previous year. The company confirmed its full-year outlook, including an operating margin target of over 5%, compared with 3.6% in 2021, and automotive operational free cash flow of over €1.5 billion.