Wednesday 08:00 BST. European and US equity benchmarks are striving to recover from recent losses as nervousness about global monetary policy leaves government bond yields near multi-week highs.

After a mixed Asia-Pacific performance, the pan-European Stoxx 600, which lost 3.4 per cent in the previous four sessions, is up 0.4 per cent as energy stocks welcome Brent crude’s 0.5 per cent gain to $47.32 a barrel.

US index futures suggest the S&P 500 will climb 0.3 per cent from its two-month closing low of 2,127.

Markets have been shaken in recent days by see-sawing expectations regarding the outlook for global monetary policy, particularly the timing of when the Federal Reserve may push US rates higher.

Diverging commentary from Fed officials and a sense among investors that policymakers are losing faith in the benefits of ultra-accommodative monetary policies have rattled traders.

“The calm after dovish comments from Fed’s Brainard on Monday proved temporary. This suggests investor concerns run deeper than just the timing of Fed rate hike,” said analysts at Citi.

“Perhaps renewed concerns over growth after bout of weak data from US, downward revision of 3Q earnings estimates, doubts over the will and ability of policymakers to support growth and rise in uncertainty over outcome of US presidential elections are causing [an] unwind of bullish exposure across markets.””

Rodrigo Catril at National Australia Bank said: “Core longer-dated [bond] yields have not retraced their moves higher seen post the ECB decision to leave its asset buying programme unchanged last week, reflecting a growing concern that policymakers no longer think the benefits from flatter curves are outweighing the costs.”

“In addition … there is also a sense that equity valuations are looking lofty, particularly if further stimulatory policies are not forthcoming,” he added.

Such concerns were to the fore of CNBC’s Delivering Alpha conference in New York on Tuesday, during which a number of Wall Street titans expressed concerns about the health of markets, with some particularly exercised by the possibility of a sell-off for sovereign debt.

These comments contributed to the nervousness in US markets on Tuesday, pushing down bond and share prices.

The yield on US 10-year Treasuries, which move inversely to the bond price and which intraday on Tuesday hit 1.752 per cent, their highest since the start of June, are easing just 1 basis point to 1.73 per cent in the new session.

Equivalent maturity German Bunds, which on July 6 touched a record low of minus 0.20 per cent, are up 2bp to 0.07 per cent, their richest offering in more than two months.

Equity markets have enjoyed a bull run in recent years partly predicated on the idea that historically low bond yields reduce corporate borrowing costs and also make stocks seem relatively more attractive compared with fixed income assets.

Consequently, the sight of bond yields moving sharply higher has been rattling some investors.

After a period of unusually low volatility for much of July and August, the S&P 500 in the last three sessions has fallen 2.5 per cent, rallied 1.5 per cent and retreated 1.5 per cent again.

The CBOE Vix index, a measure of implied volatility known as Wall Street’s fear gauge, is up to 17.7 having averaged only 12.7 over the past two months.

Gold, which is sensitive to monetary policy expectations, is up 0.2 per cent to $1,321, having fallen for five consecutive sessions to Tuesday.

The greenback has been choppy as Fed rate hike expectations have waxed and waned and the dollar index is currently easing just 0.1 per cent to 95.53 in a mostly calm forex market on Wednesday.

One notable mover is the Japanese yen, though. The buck is 0.7 per cent firmer at ¥103.26 as traders speculate that the Bank of Japan may expand its stimulus measure at its meeting next week, potentially forcing interest rates further into negative territory.

The yen’s weakness was not able to help the country’s normally exporter-sensitive stock market. The Nikkei 225 fell 0.7 per cent as shares in banks struggled because investors saw negative rates harming the sector’s business model.

Elsewhere in the region the mood was mixed. Hong Kong’s Hang Seng managed a 0.1 per cent gain, but on the Chinese mainland the Shanghai Composite fell 0.6 per cent as traders were reluctant to make bold bets ahead of the mid-autumn festival on Thursday and Friday.

Australia’s S&P/ASX 200 rose 0.4 per cent as recently battered banking stocks saw some “bargain hunting”.

Additional reporting by Peter Wells in Hong Kong

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