Wednesday, 10 October 2018

Markets mixed as higher interest rates expected

Markets were mixed on Tuesday.

The S&P 500 fell 0.1 percent but the STOXX Europe 600 rose 0.2 percent.

Earlier in Asia, the Nikkei 225 plunged 1.3 percent but the Shanghai Composite rose 0.2 percent.

While the International Monetary Fund has cut it growth forecast for the global economy, analysts mostly still see higher interest rates ahead.

“We continue to believe the curve should flatten as the Fed continues on their tightening path and see real money demand for the long-end offsetting higher supply,” Mark Cabana, a rates strategist at Bank of America Merrill Lynch, said in a report.

Mike Wilson, equity strategist at Morgan Stanley, said that the rise in interest rates would cap stock market gains and lead to intramarket rotations.

“With S&P 500 upside capped on a valuation basis, it's more likely that Value outperforms by going down less or simply not going down,” he wrote.

However, Bank of America Merrill Lynch equity strategists think that bonds will become more attractive than stocks only when the 10-year Treasury note yield reaches 5 percent.

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