Markets have a razor-sharp focus on falling government bond yields right now. Data showing a sluggish rise in German consumer prices has helped keep inflation expectations firmly anchored to the floor and provides another justification for the shift into government debt. German bund yields sit two basis points above zero. UK gilt yields are sitting just above the record low set on Thursday.
The move into bonds has been to the detriment of equities this week. The financial sector is the biggest faller across European stock markets since banks and insurance companies have the most to lose from the ongoing low rates environment.
The FTSE 100 is heading for its second weekly loss, led lower on Friday by financial shares and Tesco (LON:TSCO), which announced the sale of restaurant chain Giraffe.
Financial firms Standard Chartered (LON:STAN) and Schroders (LON:SDR) felt the wrath of British investors looking to sell stocks hurt by low interest rates. Numerous asset managers are extolling the risks of the hunt for yield including former PIMCO boss Bill Gross who called the $10trn worth of negative-yielding bonds a “supernova that will explode one day”.
The announcement of the sale of Giraffe as well as its Turkish supermarket arm sent shares of Tesco lower by over 2%. The disposal of Giraffe was thought to be off the table, so the apparent change of heart suggests a level of desperation. CEO Davis Lewis is obviously still keen to add to the ‘price war chest’ as Tesco arms up to take on discounters Aldi and Lidl.
US stocks look set for a lower open with risk-off investors preferring US treasuries before the release of consumer confidence data.
USA pre-opening levels
S&P 500: 13 points lower at 2,102
Dow Jones: 92 points lower at 17,893
Nasdaq 100: 33 points lower at 4,479
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