Global stocks fell and long-dated bond yields in Europe hit multiyear highs on Tuesday as investors grew increasingly worried about the state of finances in several nations amid escalating uncertainty over U.S. tariffs.
U.S. equities, however, closed well off their lows of the session, and the Canadian benchmark stock index ended in positive territory thanks to rallying prices for oil and gold. Both bullion and the TSX hit fresh record highs.
A divided U.S. appeals court ruled on Friday that most of President Donald Trump’s tariffs are illegal, although the court allowed for the tariffs to stay in place until October 14, pending a likely appeal to the Supreme Court. Data on Tuesday showed U.S. manufacturing contracting for a sixth straight month in August, as factories grappled with the impact of import tariffs.
“Global bond markets are starting the month with a nervous glance towards upcoming government budget discussions in the U.S. and in Europe,” Paul Christopher, head of global investment strategy at the Wells Fargo Investment Institute, said in a client note. “The cumulative increase in yields has caught the attention of equity investors.”
France’s 30-year government bond yields hit their highest levels in more than 16 years on Tuesday at around 4.5%, while yields on 30-year German bonds hit a fresh 14-year high at about 3.4%. In the UK, 30-year gilt yields notched their highest mark since 1998, as investors looked warily ahead to the government’s autumn budget plans.
Bond yields move inversely to prices, and yields especially on super-long-dated 30-year bonds have been soaring around the world, with investors concerned about the scale of debt in countries from Japan to the United States.
“The pain trade in bond markets seamlessly carried over from August into September,” said Kenneth Broux, head of corporate research FX and rates at Societe Generale. “And the flurry of new primary issuance that awaits investors in the coming days and weeks threatens to exacerbate the global selloff in the long end.”
The U.S. 30-year yield was up 5.1 basis points at 4.96%, while benchmark 10-year Treasury yields rose 4.5 bps to 4.27%. Canada’s 10-year yield rose 7 basis points to 3.44%, although that was well within trading ranges of the past month.
Britain and France are in particular focus. French Prime Minister Francois Bayrou looks set to lose a confidence vote as opposition parties balk at his cuts to government spending, while British finance minister Rachel Reeves is expected to raise taxes in her autumn budget to remain in line with her fiscal targets.
Europe’s broad Stoxx 600 share benchmark was down 1.5%. The S&P 500 was down 0.69%, the Dow Jones industrial average lost 0.55%, and the Nasdaq fell 0.82%.
The S&P/TSX composite index ended up 0.2% at 28,615.62, eclipsing Friday’s record closing high.
“This was one of those days where the resource sector exposure came through for Canada,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
The materials group, which includes metal mining shares, added 1.8% as copper prices climbed and the price of gold extended its record-breaking rally. Gold has often provided a haven for investors in times of uncertainty.
The price of U.S. oil settled 2.5% higher at US$65.59 a barrel, which boosted the energy sector. Energy was up 0.9% and heavily weighted financials ended 0.1% higher.
The real estate sector, which is particularly sensitive to bond yields, was a drag and fell 1.5%,
Domestic data was downbeat. Canada’s manufacturing sector contracted in August for the seventh straight month as U.S. tariffs weighed on export demand.
The U.S. business activity data was the first installment in a packed week of American economic figures, which will either underscore expectations the Federal Reserve will cut rates later this month, or put them into question. The most important of the week’s data is Friday’s U.S. nonfarm payrolls report, which will be preceded by data on job openings and private payrolls, providing investors and the Fed a clearer picture of the labor market that has become the center of policy debate.
Markets widely expect the Fed to lower interest rates later this month, pricing in an 89% chance of a 25-basis-point cut.
Among U.S. stocks, Constellation Brands tumbled 6.6% after the beer, wine and spirits company warned that it’s seen a slowdown in purchases of its high-end beers, particularly among its Hispanic customers. That pushed it to slash its forecast for profit this fiscal year.
Kraft Heinz fell 7% after announcing that it’s splitting into two, a decade after a merger of the brands created one of the biggest food companies on the planet.
Among the stock market’s few gainers was PepsiCo, which rose 1.1% after an investment firm said it sent suggestions to the company’s board to reaccelerate its growth and boost financial performance. The investor, Elliott Investment Management, has a history of buying into companies and pushing for big changes that can lead to better stock performance.
In Canadian stock news, Telus Corp. said it would buy the remaining shares in its digital services unit in a $539 million cash-and-stock deal, looking to expand its artificial intelligence capabilities. Shares of the telecom company were down 0.4%.
Reuters, The Associated Press, Globe staff