Stock and bond yields plummet amid tensions in Taiwan

A man in a protective face mask walks past a screen displaying the Shanghai Composite Index, the Nikkei Index and the Dow Jones Industrial Average outside a real estate agency in Tokyo, Japan, Feb. 14, 2022 during the coronavirus disease (COVID-19) pandemic. REUTERS/ Kim Kyung Hoon

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  • MSCI World Index falls 0.4%
  • Bond Yields Fall
  • Pelosi visits Taiwan
  • Australian dollar weakens after central bank rate hike

LON.S House Speaker Nancy Pelosi DON/TOKYO, Aug. 2 (Reuters) – Global stocks fell and bond yields fell Tuesday, raising fears of a global recession, amid concerns that a visit from Nancy Pelosi, Speaker of the US House of Representatives to Taiwan, damaging relations between China and the United States.

Investors sought safer assets after China threatened repercussions if Pelosi visited the self-ruled island, which Beijing considers its territory.

Long-term US Treasury yields fell to their four-month low, while Eurozone bond yields fell. The dollar and the Japanese yen gained. Crude oil also slumped as investors amid signs of a global production slowdown.

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Pelosi was set to arrive in Taipei later on Tuesday, with several Chinese warplanes flying close to the median line dividing the Taiwan Strait, a source told Reuters.

China has repeatedly warned that Pelosi will not go to Taiwan. Washington said Monday it would not be intimidated by China.

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The MSCI World Equity Index (.MIWD00000PUS), which tracks stocks in 47 countries, fell 0.4%. The broad Euro STOXX 600 (.STOXX) lost 0.7% before recouping some of its losses.

Wall Street stocks would fall around 0.7%, futures meters showed.

“It’s all about the threat from Taiwan,” said Robert Alster, chief investment officer at Close Brothers Asset Management. “There’s no way you can say it hasn’t moved to the geopolitical agenda.”

The Taiwanese issue added to a sense of unease sparked Monday by China, Europe and the United States, which reported weakening factory activity, with it in the US declining to its lowest level since August 2020. read more

Benchmark yields on 10-year US Treasuries fell to 2.53% in Tokyo trading, their lowest level since April 5, also benefiting from bets that a slowdown could spur the US Federal Reserve to ease the policy-tightening pedal.

German 10-year yields fell 4.5 basis points to 0.72%, following their lowest level since early April.

Brent futures fell to $99.55 a barrel after losing nearly $4 overnight. US West Texas Intermediate futures also fell to $93.59, extending Monday’s nearly $5 gain.

MSCI’s broadest index of Asia-Pacific stocks (.MIAP00000PUS) fell 1.3%. The Taiwanese stock index (.TWII) fell as much as 1.9%, while Chinese blue chips (.CSI300) fell 2.5% before making some of their loss.

AUSSIAN WEAK

The flight to safety also played out in the currency markets.

Against the Japanese yen, the US dollar fell to a low of 130.40, a level not seen for nearly two months. Against a basket of currencies, the dollar rose 0.25% to 105.61.

The Taiwan dollar fell to its lowest level in more than two years at the weaker side of 30 per US dollar.

Australian equities contained the declines and the Australian dollar weakened after the central bank raised its key rate by an expected 50 basis points, with markets interpreting the changes in the accompanying policy statement as moderate. read more

The Aussie was 0.51% lower at $0.69910, extending a 0.14% pullback following the Reserve Bank of Australia policy decision.

It had hit its all-time high since June 17 at $0.7048 in the previous session, but that was after a 26-month low at $0.66825 in the middle of last month.

“The Aussie has underperformed other major currencies of late given concerns about global growth, so it really needed an aggressive surprise to kick-start the recovery from its two-year low,” said Sean Callow, currency strategist at Westpac in Sydney.

“Instead, the RBA left the door wide open to slow the pace of tightening in future meetings.”

Cryptocurrencies, a barometer of risk appetite, also fell, with bitcoin falling 2.3% to $22,753.

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Reporting by Tom Wilson in London and Kevin Buckland in Tokyo; Additional reporting by Tom Westbrook; Editing by Robert Birsel and Angus MacSwan

Our Standards: The Thomson Reuters Trust Principles.

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