[MARKET ANALYSIS] Global equities weighed on by rising bond yields
- European bourses are softer across the board, with the recent bond selloff causing risk aversion. Persisting inflationary pressures, increased government spending and shifting investor demographics are hitting bonds globally. Political uncertainty, especially in the US ahead of the midterms, is also putting pressure on bonds. Its impact on equities is that higher yields would weigh on profits as it would require larger payouts. Higher yields would also mean higher discount stock valuations.
- On the data front, UK jobs and wages data was a mixed bag. Wage metrics was hotter-than-expected, while the unemployment rate unexpectedly remained at the prior 4.9% level. Employers also cut another 13k workers from payrolls while job vacancies fell to a new 5-year low. Overall, the mixed series reinforces the extended hold narrative for the BoE.
- Sectors highlight the negative bias. Retail and Energy are the only sectors posting decent gains while Tech, Industrial Goods & Services and Basic Resources are the sector laggards.
- Key movers include: Coloplast (+2.4%), Q3 revenue beat estimates; Whitbread (+1.5%), upgraded to market perform at SocGen; Hermes (-1.0%), downgraded to sector perform at RBC, stating that the Co. can no longer expect to book growth in revenue and earnings so far ahead of its rivals.
- US equity futures have been hit, given the higher bond yields. Newsflow has been light, but focus will be on miners after BHP reported full-year profit beat expectations and the miner lifted its dividend to a four-year high, driven by record copper prices and stronger copper earnings that overtook iron ore as its biggest profit contributor.
Selloffs driven by the long end rather than by front-end policy repricing have a well-worn transmission into equities: higher discount rates compress valuations, with long-duration growth sectors such as tech typically bearing the brunt while value-tilted sectors like energy hold up better. The sector pattern described here, tech, industrials and basic resources lagging while retail and energy gain, fits that duration playbook rather than a growth-scare rotation. The supply and fiscal angle matters for the distinction: when term premium and issuance concerns drive yields, the move tends to be stickier than data-driven repricing, and equities have historically struggled to decouple until the rates move stabilises. The UK labour print sits squarely in the familiar stop-start pattern for the BoE, hot wages against soft hiring and falling vacancies, a mix that in past episodes has reinforced extended holds rather than shifting the path in either direction; the next inflation release carries more weight than another jobs report of the same shape. On the corporate side, a major miner lifting returns on record copper earnings, with copper overtaking iron ore as the profit driver, is consistent with the broader rotation of miner cash flows toward electrification-linked metals and away from bulk commodities tied to Chinese construction. Worth watching is whether the gilt and Treasury long ends find a bid, since that, not the equity tape, sets the tone for the next session.