April 23, 2018 / 12:09 PM / a year ago

GLOBAL MARKETS-Stocks stumble as U.S. yields near 3 percent barrier

* U.S. earnings season heats up with major tech names due

* PMI surveys to help judge if Q1 slowdown was temporary

* Treasury yields near 3 pct rattle stocks, underpin dollar

* Oil prices just off peaks, lift inflation expectations

* Aluminium rally resumes, jumping as much as 2.2 percent (Updates prices, changes quotes)

By Marc Jones

LONDON, April 23 (Reuters) - Global equities slipped on Monday as U.S. bond yields approached the 3 percent level that has triggered market spasms in the past and investors awaited earnings results from some of the world’s biggest firms.

Wall Street looked set to open flat to weaker, S&P500 futures indicated.

Equity markets which have risen for the past two weeks, have come under pressure as oil’s latest moves higher have fuelled inflation worries and pushed up government bond yields — the yield on 10-year U.S. Treasuries hit its highest level since January 2014 at 2.99 percent.

That drove the gap - or spread - with German bonds to the widest in 29 years while lifting the dollar almost half a percent.

“Brent crude is now close to $75 (a barrel) and that has had a knock on effect on government bonds,” said DZ Bank analyst Rene Albrecht.

“With pressure from oil, and also aluminium and steel prices, the inflation topic has made a kind of comeback after being derailed by the trade dispute headlines.”

Oil prices edged down but stayed near their highest since late-2014, with futures around $74 per barrel.

Aluminium prices leapt again, though, to add to this month’s 25 percent surge following U.S. sanctions on Russia’s producer-giant Rusal.

On the economic front, a global round of economic surveys should show if economic softness in the first quarter was a passing phase linked to wintry weather and Lunar New Year holidays in Asia.

Readings from Japan, France and Germany were all relatively reassuring

“It’s a good reading, it’s still encouraging,” said Chris Williamson, chief business economist at IHS Markit, of the combined euro zone numbers, which he said pointed to quarterly GDP growth of 0.6 percent.

On the geopolitical front too, there was plenty to digest.

North Korea said on Saturday it would suspend nuclear and missile tests and scrap its nuclear test site.

Talk of a trip by the U.S. Treasury Secretary Steven Mnuchin to China also fuelled hopes that trade tensions between the world’s two biggest economies may be thawing.

But the rise in bond yields overshadowed these positives.

MSCI’s world index fell 0.25 percent after Asia shed 0.5 percent, while European bourses also slipped, after results from Switzerland’s biggest bank, UBS, disappointed.

UBS shares fell 4 percent at one point.

All eyes are now on U.S. earnings, with more than 180 companies in the S&P500 reporting results this week. These include tech giants Amazon, Alphabet, Facebook, Microsoft, as well as Boeing and Chevron.

S&P 500 companies are expected to report their strongest first-quarter profit gains in seven years. Of the 87 companies that have reported so far, 79.3 percent have topped profit expectations, according to Thomson Reuters I/B/E/S.


Fears are the rise in bond yields could further derail world stocks which stand some 7 percent off end-January peaks.

When U.S. 10-year yields neared the 3 percent mark in 2013, it rocked risk appetite and sent stocks sliding. It also came shortly before oil’s 75 percent price tumble.

“Another $5/barrel increase in oil will be enough for U.S. 10-year yields to threaten 3 percent. Oil is now at the cusp of levels where higher prices will spark greater currency and broader asset market volatility,” said Deutsche Bank’s macro strategist, Alan Ruskin.

While the dollar traditionally has a slight negative correlation with oil, Ruskin said higher 10-year yields would be “mildly dollar-positive”.

Indeed, dealers cited yield differentials for the dollar’s latest rally, as the gap with German bonds touched the widest in almost three decades.

The greenback rose strongly against the yen and euro. The latter slumped 0.5 percent to 108.21, the weakest since Feb. 13, weighed down also by easing risks around North Korea.

The euro too fell half a percent to around $1.2232. It could gain direction from the European Central Bank meeting on Thursday, especially if policymakers signal it may be too early to announce a timetable for winding down bond-buying.

ECB chief Mario Draghi said on Friday that while the inflation outlook had picked up, uncertainties “warrant patience, persistence and prudence”.

Additional reporting by Wayne Cole in Sydney; Sujata Rao and Jonathan Cable in London Editing by Gareth Jones and Jon Boyle

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