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Stocks head lower on US budget worries
Rising US bond yields, a reflection of worries about the worsening condition of the US government deficit, have driven stocks lower over the past 24 hours.
Rising yields cast a shadow over stocks
US stock markets came under heavy pressure yesterday thanks to rising US bond yields. An auction of US government debt saw borrowing costs head higher again as investors become more jittery about the fiscal outlook of the US government.
The latest budget plan in the US is set to add trillions to the federal deficit thanks to a wave of tax cuts. Before April, markets had been relatively forgiving, given the underlying strength of the US economy. But Donald Trump’s tariff plan has set alarm bells ringing, raising the risk of a sustained recession in the world’s largest economy. The safe-haven status of US debt is being called into question as a result.
The Dow's 800 point drop is its largest in a month, and reflects growing unease that stocks have become too complacent about the outlook for the global economy. Tariffs may have been paused for now, but they remain at a much higher level than was the case before Trump took office, and we have yet to see their impact in either corporate or economic data, beyond some efforts at quantifying the impact in some company outlooks.
European stocks fall in early trading
“The gloomy tone in the US has carried over into the European session. Equity markets do remain vulnerable in the short-term to further worries about the US economy. Economic data covering May will start to arrive from next month, providing a more up-to-date picture of how economies are faring in the new post-‘Liberation Day’ world.
Corporate news has come through thick and fast for UK investors today, including BT and easyJet. Both these names have fallen in early trading, despite reiterating current guidance. Having rebounded sharply from their August lows, most stocks face hurdles to further gains in their share price; investors now expect more in the way of good news than was the case a month ago when they were much more cautious.
While this doesn’t preclude further gains in the short-term, it does probably mean that the sharp moves higher have come to an end for the time being, and a slower and more volatile grind is more likely to be the dominant theme.
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