Why a host of factors add up to pressure on the stock market continuing, according to BNP Paribas.
The bond market is the main question preoccupying strategists at the moment. Even after the big drop in yields following the jobs report, the 10-year yield BX:TMUBMUSD10Y has climbed 24 basis points over the last three weeks, and the 30-year BX:TMUBMUSD30Y has jumped 31 basis points.
The team at BNP Paribas say the recent increase in yields is not an overshoot, though they do admit being caught by surprise by the speed and nature of the move. “We think there is a clear argument for a further rebuild of term premium, biasing curves steeper and keeping long-end yields stickier into an eventual downturn,” say strategists led by Sam Lynton-Brown, global head of strategy.
BNP also brings back a story that was at the forefront of minds when the debt ceiling was lifted, namely the reversal in liquidity conditions. The French bank points out that most of the global move there relates to European banks having to repay loans to the European Central Bank in June. “The market reacts with a lag to liquidity contractions – peak cumulative impact on key assets is usually reached between 8-12 weeks of a liquidity shock.
The buzz While you were at the beach this weekend, Berkshire Hathaway BRK.B reported its second-quarter results, and the takeaway was that operating profits rose by 6%.
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