0708 GMT - Financial markets are likely to be shaped by two conflicting forces in 4Q: high government bond yields, and robust economic momentum with continued corporate earnings growth, says Vincenzo Vedda, global chief investment officer at DWS. "While higher oil prices have often been cited as the main driver of higher bond yields, the increase has not been fueled by rising inflation expectations but by a rise in real yields," he says. As the 3Q earnings reporting season approaches, higher expectations compared with 2Q raise the risk of disappointment even if the numbers are good, Vedda says. There needs to be sufficiently broad earnings momentum for equities to offset higher bond yields, which are typically a drag on most sector valuations, he adds.
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