*** World stocks slump on flight to bonds | THE DAILY TRIBUNE | KINGDOM OF BAHRAIN

World stocks slump on flight to bonds

London: Equity markets around the world retreated yesterday as unease over central bank policy and Britain’s looming referendum on EU membership sent investors flocking to bonds.

“Global stocks slumped as investors sought the safety of government bonds on Friday,” said analyst Jasper Lawler at CMC Markets. 

Frankfurt and Paris both lost more than two percent, and London fell 1.9 per cent.

Milan’s main index slumped 3.6 pc and Madrid 3.1 pc.

The yield or rate of return on the Bund, Germany’s 10-year government bond, meanwhile hit 0.02 pc yesterday morning in trading on the secondary market, as it edged closer to negative territory.

The equities losses came after a healthy run of gains early this week helped in part by a recovering oil market. But markets were spooked Thursday by European Central Bank chief Mario Draghi calling for governments to step up spending to help kickstart eurozone growth.

His comments were taken as a sign that the ECB’s arsenal is running low following the inclusion this week of corporate bond purchases in its unprecedented stimulus programme.

Wall Street was also lower, with the Dow down 0.5 pc in late morning trading, as investors came to grips with indications from Federal Reserve boss Janet Yellen that the US central bank is unlikely to lift interest rates until the final quarter of 2016 following weak jobs data from the world’s biggest economy.

Adding to markets’ restlessness are fears that a Brexit vote on June 23 could unleash a wave of turmoil across world indices.

“The economic impact of the EU vote is riding high in investors’ minds as they try to assess how it will affect the UK, European and global market outlook over the coming months,” said Dave Jeal, head of investment products at stockbroker Interactive Investor. 

The British pound lost ground against both the dollar and the euro.

Market focus was starting to turn toward next week’s monetary policy meetings of the US and Japanese central banks.

“Behind the move into bond markets is a flight to safe assets ahead of central bank meetings next week,” said Lawler at CMC Markets.

The Bank of Japan earlier this year adopted a negative interest rate policy, following a similar move in 2015 by the ECB, to nurture investment.  

Related Posts