Stocks mixed as investors digest high US yields, China challenges

NEW YORK (AFP): Global stocks saw a mixed day of trading Friday as investors contemplated the prospect that interest rates could remain higher for longer and on concerns over China’s economy.

Stocks on Wall Street finished largely flat as investors snapped up more attractive government bonds with higher yields.

The Dow Jones Industrial Average finished up slightly, while the S&P was flat and the Nasdaq fell.

Meanwhile, the yield on the 10-year US Treasury note eased off highs seen earlier this week, when it was briefly flirting with a new 15-year high.

“There are a lot of investors looking at the yields and they are starting to get very attractive,” financial advisor Tom Cahill from Ventura Wealth Management told AFP.
“They are stepping in to do some buying of the bonds and of course that drives down yields — and that’s better for stocks,” he added.

In the eurozone, Paris and Frankfurt ended the week in the red.

In London, the FTSE 100 also closed lower, as a wet July dampened UK retail sales, which fell more than expected last month, official data showed.

Traders have been spooked after minutes from the US central bank’s July meeting hinted that further increases in borrowing costs could lie ahead, as policymakers grapple with inflation. While inflation in the United States has come down sharply in recent months, it remains above the Fed’s long-term target of two percent.

Some decision-makers at the Fed have suggested its two percent goal can only be achieved and maintained by pushing interest rates higher.

Fed chief Jerome Powell’s speech at next week’s annual Jackson Hole economic symposium in Wyoming will be closely followed for clues about the bank’s plans.
Asian markets were well in the red, too, including Hong Kong, which was down for a sixth consecutive trading day.

Investors are also keeping an eye on China, where authorities are struggling to get a grip on the economy as its recovery from Covid peters out.

And the property crisis is also back in the headlines.

On Thursday, Chinese property giant Evergrande Group filed for bankruptcy protection in the United States, a measure that protects its US assets while it attempts to push through a restructuring.

That comes days after Country Garden, another major Chinese developer, said there were “major uncertainties in the redemption of corporate bonds,” suggesting it could default on a bond payment next month.

There are now concerns about property firms backed by the government, with Bloomberg reporting that many are warning of widespread losses.

It said 18 of the 38 state-owned enterprise builders traded in Hong Kong and China had posted preliminary losses in the first half of the year, compared with 11 that warned of full-year losses in 2022.

“China’s property slowdown is already hurting all developers, including the large government-linked ones,” said Zerlina Zeng of CreditSights Singapore.
“We do not expect the situation to materially improve in the second half.”