June 2019, while the UK 10-year gilt yield climbed to 1.24%, the highest level since 1998. The German 10-year bund yield also hit a three-year high of -0.05%12
The surge in bond yields weighed on the stock markets, especially the growth-oriented sectors that are sensitive to higher interest rates. The Dow Jones Industrial Average fell 0.22% to 33,433.35, while the S&P 500 edged up 0.0079% to 4,288.39. The Nasdaq Composite outperformed, gaining 0.67% to 13,307.77, as some tech stocks rebounded from recent losses. The Russell 2000 index of small-cap stocks dropped 1.58% to 1,756.82, underperforming the broader market13
In Europe, the pan-European STOXX 600 index slipped 0.1%, hovering near a six-month low. Automakers, retailers and banks were the biggest sectoral decliners, falling between 0.7% and 1%, but utilities rebounded from recent sharp losses. The UK’s FTSE 100 index fell 0.4%, while France’s CAC 40 index rose 0.2%. Germany’s DAX index was flat, as investors awaited the outcome of coalition talks to form a new government after last month’s election2
In Asia, markets were mixed, as investors digested the latest economic data from China and Japan. China’s official manufacturing PMI fell to 49.6 in September, below the 50-mark that separates expansion from contraction, indicating that the world’s second-largest economy is facing headwinds from power shortages and COVID-19 outbreaks. Japan’s industrial output rose 1.6% in August, beating expectations, but retail sales fell 2.4%, missing forecasts. The Nikkei 225 index gained 0.5%, while the Shanghai Composite index lost 0.4%. The Hang Seng index in Hong Kong rose 1%, as the city relaxed some social distancing measures amid a decline in COVID-19 cases4