STORY CONTINUES BELOW THESE SALTWIRE VIDEOS - Cracks are forming in a global stocks rally, with surging bond yields, rising energy prices and intensified worries over China’s economy among the factors sapping investors’ risk appetite following months of gains in equity markets.
Yields in other economies have also pulled higher. Britain’s 10-year real yield, for instance, on Thursday rose to its highest since last October. Rising yields have also supported the dollar , which is up about 4% from its recent lows against a basket of currencies. More dollar strength could be an unwelcome development for everyone from U.S. exporters and multinationals, who need to convert profits back into their home currency, to emerging market economies, as it makes it more difficult for them to service dollar-denominated debt.
In Europe, a key long-term gauge of market inflation expectations remains well above the European Central Bank's 2% inflation target. Data this past week showed basic wages in Britain growing at their fastest rate for at least two decades, adding to worries for the Bank of England about long-term inflation pressures even after 14 back-to-back rate hikes.
Since the start of August, a widely-used U.S. financial conditions index compiled by Goldman Sachs has tightened some 50 basis points to just under 100, the tightest level since May and a level Goldman says corresponds to the long-run average. The bank has previously shown that a 100-basis-point tightening in conditions crimps growth by one percentage point in the coming year.