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Markets Update am

  • Stocks, Bonds, Commodities Slide as Fed Weighs June Rate Hike
  • Gold and oil fall as Treasury yields hold near two-month highs
  • Markets hit by fears of US June rate hike

The London stock market has shed 50 points, or 0.8%, at the start of trading.

Mining shares are leading the selloff, with silver miner Fresnillo sliding by 5%.

That’s because the prospect of higher US interest rates is pushing up the US dollar, and driving down commodity prices.

Other European markets are also dropping, with the German DAX shedding 1% and the French CAC down 0.5%.

Asian stocks fell and the U.S. dollar stood tall on Thursday as markets scrambled to factor in the possibility of another interest rate increase by the Federal Reserve as early as June. Gold stumbled.

South Korea  and Australia led regional markets lower with 0.6 and 0.8 percent falls respectively as investors refocused their attention on the growing differences between the health of the world’s biggest economy and its global counterparts.

“In the short term, emerging markets are the most vulnerable,” Steven Englander, global head of G10 FX strategy at Citibank wrote in a note to clients.

“Overall, the divergence trade is revived until further notice,” he wrote in a note to clients, saying the Canadian dollar  and the Aussie AUD=D3 were vulnerable due to concerns around those economies.

Moody’s Investor Services said in a note rising leverage in China and emerging markets in general is an even greater concern now that the possibility of another U.S. interest rate hike this summer is back on the table.

Japan’s Nikkei .N225 rose early thanks to a weaker yen, which fell to a three-week low against the dollar after minutes of the last Fed meeting, but later pared its gains to just 0.2 percent.

The Fed minutes highlighted policymakers’ views that it would be appropriate to raise interest rates in June if economic data points to stronger second-quarter growth as well as firming inflation and employment.

Such views helped revive the prospect of a rate hike in June, which had been dismissed by many investors.

Ten-year Treasury yields also moved higher in the wake of the Fed minutes but are 2bp softer on Thursday at 1.86 per cent.

Equivalent maturity German Bunds are up 3bp to 0.19 per cent, but the wide yield US/eurozone yield differential — reflecting the ECB’s ongoing easing measures — is supporting the buck.

Rising implied borrowing costs are weighing on equities and gold, with the bullion down $3 to a three-week low of $1,255 an ounce.

Stock benchmarks are also under pressure from a weak energy sector as the firmer dollar adds to pressure on oil prices.

Brent crude’s strong rally off the January low of $27 a barrel appears to be struggling to maintain momentum, with the international oil barometer slipping 2.2 per cent to $47.87 a barrel as supply disruption fears fade somewhat.

Renewed strength in the greenback prompted the People’s Bank of China to fix the midpoint for the renminbi 0.5 per cent weaker at Rmb6.5531 per dollar, the softest level since February 3.


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