Bonds take a breather, Tencent tumbles again

LONDON: The government bond market rally that had sent U.S. Treasury yields under 1.2per cent and the entire German curve negative paused on Tuesday, though there were more problems in China as internet giant Tencent took another battering.

Rising bank shares helped Europe's main bourses and Wall Street futures shuffle higher but the real action was elsewhere.

A Chinese state media outlet branding online games "spiritual opium" was enough to send Tencent's shares tumbling as much as 10per cent in Asia, wiping US$60 billion off its value hot on the heels of its worst month in nearly a decade.

The firm scrambled to say it would curb children's access to its flagship Honor of Kings game but the panic engulfed gaming rivals NetEase, XD and GMGE which all plunged between 8per cent and 15per cent.

There was other spill over too. Shares in Amsterdam-listed tech investment firm Prosus, which holds a 29per cent stake in Tencent, fell more than 5per cent. European gaming firms Ubisoft and Evolution fell 2.6per cent and 5per cent and the U.S. listed shares of Netease dropped 9per cent before the bell

"China is exerting control over its tech sector and this has already driven a very sharp de-rating," Hasnain Malik, head of equity research at Tellimer said.

He said that there would be no reversal in Beijing's direction although the more than 40per cent slump in many of the biggest Chinese tech firms since February meant they may now be worth a "revisit".

Graphic: BATtered, https://fingfx.thomsonreuters.com/gfx/mkt/zdvxoyjbgpx/Pastedper cent20imageper cent201627980391416.png

Big FX movers were the Australian dollar, which jumped half a percent after its central bank stuck with plans to taper its bond buying programme from next month despite ongoing coronavirus lockdowns.

New Zealand's dollar also rose after its central bank said it would look at ways to control an inflated house prices while the Swiss franc hit its highest since November versus the euro.

The U.S. dollar meanwhile lurked near one-month lows after disappointing economic data on Monday. That had also pushed the benchmark 10-year Treasury yield down as far as as 1.151per cent, its lowest since July 20, though Tuesday's moves nudged it back up to 1.19per cent

"There is some definite downside bias in the dollar now," said Vasileios Gkionakis, Global Head of FX Strategy at fund manager Lombard Odier in Switzerland. "You are starting to a see a rotation of growth away from the U.S."

Graphic: "Spiritual opium" video game shares tumble, https://graphics.reuters.com/GLOBAL-MARKETS/SHARES/lbvgnryrkpq/chart.png

NEGATIVITY

In Europe's bond markets, Germany's 10-year yield was up less than a basis point at -0.475per cent having fallen to its lowest since early February on Monday when the whole German yield curve went back into negative territory.

Falling yields globally over the last two months mean there is now more than US$16 trillion worth of negative yielding debt again. It had peaked at just above US$18 trillion in December.

"If you go back a couple of months the concern about inflation was present everywhere but even in the United States now you don't see the same sort of concerns," said Morgan Stanley's chief economic adviser Reza Moghadam. "The issue now is growth".

In commodity markets, oil steadied having slumped 3per cent on Monday on a combination of the U.S. and Chinese economic worries amid the sharp rise in COVID-19 Delta variant cases around the world.

Wuhan in China, where the virus first emerged in late 2019, said overnight it would test all 12 million of its residents after confirming its first Delta variant cases.

Brent crude was up 33 cents in London at US$73.28 per barrel. U.S. crude inched up to US$71.56 a barrel while gold and industrial metal copper were both slightly lower at US$1,810.45 per ounce and 9,594.50 a tonne respectively.

(Additional reporting by Tom Arnold and Sujata Rao in London; Editing by Emelia Sithole-Matarise and Alison Williams)