Stocks wobble as relief rally fades, Japan debt sale disappoints

LONDON: Stock markets dipped on Wednesday as optimism over easing trade tensions ran out of steam and a weak Japanese debt sale fuelled concerns about rising bond yields.

European and Asian equities struggled to track a rally the previous day on Wall Street fuelled by forecast-beating US consumer confidence data and easing tensions between the US and European Union.

“The fizz of relief boosting stocks so far this week looks set to go a little flat, as a wait-and-see mood looks set to spread on Wall Street,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Markets had been lifted at the start of the week after US President Donald Trump delayed 50 per cent tariffs on the EU that had sparked a market rout.

But “risk sentiment has lost some steam on Wednesday”, said Kathleen Brooks, research director at trading group XTB.

“There are no major drivers of sentiment this morning, however, multiple factors have led to a softening in risk appetite including, higher bond yields after a weak auction of Japanese debt,” she added.

London, Paris and Frankfurt were all lower in midday deals, after giving up earlier gains. In Asia, Hong Kong fell while Shanghai and Tokyo were flat at the close.

Wellington was also in the red even after New Zealand’s central bank cut interest rates for the sixth meeting in a row.

The yen lost some of its early gains after the auction of 40-year Japanese government bonds (JGBs) was met with the worst take-up since July.

That came after last week saw the worst auction of 20-year notes for more than a decade.

The cost of government debt has risen around the world in recent weeks -- notably hitting record highs last week in Japan -- amid worries about rising spending as leaders try to support their economies and after Trump’s April 2 tariff blitz. The Bank of Japan’s decision to reduce its purchases of JGBs as it looks to tighten monetary policy in the face rising inflation has added to the rising yields.

The gloomy auction reversed Tuesday’s rally that came after Japan’s Ministry of Finance sent a questionnaire to market players regarding issuance, fuelling talk that it was considering slowing its sales, meaning there would be less supply. Bonds yields rise and prices fall when demand is weak.

Still, Masahiko Loo, senior fixed-income strategist at State Street Global Advisors, said the JGB panic may have been overdone. “Any perceived supply-demand imbalance is more a matter of timing mismatches, which is a technical dislocation rather than a fundamental flaw.” “We expect these imbalances to be resolved as early as the third quarter of 2025,” he said.