Stocks drop on expectations of less central bank stimulus

LONDON – World stocks mostly fell Monday as a broad rise in government bond yields suggested investors are expecting less central bank stimulus and higher interest rates than before.

KEEPING SCORE: France’s CAC 40 slipped 0.2 per cent to 4,460 and Germany’s DAX was down 0.3 per cent to 10,545. Britain’s FTSE 100 fell 0.6 per cent to 6,970. U.S. shares were set to drift lower with Dow and S&P 500 futures both down 0.1 per cent.

GLOBAL RATES: A drop in bond prices, which pushes up bond yields, indicated that investors are predicting tighter monetary policies from central banks. That includes the possibility of an interest rate increase in the U.S. in coming months as well as potentially less stimulus in the eurozone and U.K. Bond yields were rising in many advanced economies, particularly the U.S., U.K. and Germany, albeit from near-record lows. Central bank stimulus is credited with propping up company share prices in recent years, so the possibility of tighter money tends to weigh on stocks.

ANALYST TAKE: “This move in bond markets could well have further to run, particularly since we have inflation data out this week from Europe, the U.K. and the US, as well as the latest European Central Bank rate meeting,” said Michael Hewson, chief market analyst at CMC Markets.

BANK EARNINGS: There will also be a lot of interest this week on a slew of quarterly earnings reports in the U.S. Bank earnings will be a feature of the week. On Monday, Bank of America said its third-quarter profits rose nearly 6 per cent from a year earlier, helped by strong results in investment banking and trading. The $4.45 billion figure better than analysts had expected, leading investors to bid up the bank’s shares by 2 per cent in pre-market trading. The report followed better-than-expected earnings from Citigroup and JPMorgan Chase, and helped steady investor nerves about a sector that is ailing in Europe and seen a scandal engulf Wells Fargo.

ASIA’S DAY: Japan’s benchmark Nikkei 225 wobbled but finished 0.3 per cent higher at 16,900.12. South Korea’s Kospi rose 0.2 per cent to 2,027.61, while Australia’s S&P/ASX 200 dipped 0.8 per cent to 5,388.70. Hong Kong’s Hang Seng fell 0.8 per cent to 23,037.54 and the Shanghai Composite index fell 0.7 per cent to 3,041.17. The SET of Thailand dropped 0.2 per cent to 1,474.39 and other markets in Southeast Asia were mostly lower.

ENERGY: U.S. benchmark crude oil rose 15 cents to $50.50 a barrel in New York. It lost 9 cents on Friday. Brent crude, the international standard, gained 25 cents to $52.20 a barrel in London.

CURRENCIES: The dollar edged up to 104.09 yen from 104.08 yen late Friday in Asia. The euro fell to $1.0998 from $1.1029 and the pound continued its descent of recent weeks. It was down 0.3 per cent at $1.2151.