Stocks gain as bonds recover; rising tensions boost oil prices

Global stocks and bonds advanced on Thursday as investors awaited U.S. economic data and comments from central bankers that could strengthen expectations of a Federal Reserve rate increase this month.

A recovery in global bond markets lifted equities, while the yen headed toward its strongest two-day gain since official intervention early the previous month. Oil prices reversed earlier losses and rose above $95 a barrel as uncertainty continued over renewed military strikes between the United States and Iran.

The STOXX 600 gained 0.2%, ending a three-day decline, while U.S. stock futures rose about 0.1%. In premarket trading, Broadcom shares fell roughly 2% after its fourth-quarter revenue forecast missed expectations. Snowflake shares jumped more than 20% after the cloud data platform raised its annual revenue outlook.

Investors were focused on Friday’s U.S. payrolls report after weak private employment data for August. Federal Reserve Board Governor Christopher Waller was scheduled to speak. New York Fed President John Williams said on Wednesday that higher long-term bond yields reflected a solid economy rather than inflation fears, and that he was still gathering information before making his next monetary policy decision.

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There is an interpretation about why yields are moving higher, is it good, or bad? I feel that the negative reasons are more often put forward than the positive reasons. Negative reasons being: too much supply of debt, fiscal risk, geopolitics and normalisation of risk premium because of oil. But it might be that a key reason behind higher yields is simply higher nominal growth.

“There is an interpretation about why yields are moving higher, is it good, or bad? I feel that the negative reasons are more often put forward than the positive reasons. Negative reasons being: too much supply of debt, fiscal risk, geopolitics and normalisation of risk premium because of oil. But it might be that a key reason behind higher yields is simply higher nominal growth,” said Samy Chaar, chief economist at Lombard Odier.

“If demand is strong and it’s demand that is keeping yields at high levels, it’s quite a good environment for multi-asset portfolios, in the sense that you want to be exposed to profit growth with equities, and you want to be exposed to carry as well, with credit,” Chaar said.

Money markets assigned about a 60% chance of a Federal Reserve rate increase this month, up from less than 40% a week earlier. Sovereign bond yields fell after reaching multi-year highs the previous week amid concerns about tighter monetary policy and worsening fiscal conditions. The U.S. 10-year yield fell two basis points to 4.77%, while Germany’s 10-year yield also fell two basis points to 3.353%.

The dollar index dropped 0.4%, largely because of the yen’s gains. Expectations that the Bank of Japan could raise rates sooner pushed the yen more than 2.5% higher over two days to about 156.1. The euro rose 0.18% to about $1.1609, and the pound gained 0.1% to $1.349.

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If demand is strong and it’s demand that is keeping yields at high levels, it’s quite a good environment for multi-asset portfolios, in the sense that you want to be exposed to profit growth with equities, and you want to be exposed to carry as well, with credit.