News: World shares dip as bond yields, commodities surge.
LONDON (Reuters) – World stocks fell Monday as expectations of faster economic growth and inflation weighed on bonds and boosted commodities, while rising real yields made stock valuations look stretched in comparison.
MSCI’s All Country World Index, which tracks stocks in 49 countries, fell 0.25% in London by noon.
The pan-European STOXX 600 index fell 0.6%, reaching its lowest level in 10 days. The German DAX and the French CAC 40 and the British FTSE 100 each fell by 0.5%. The Spanish IBEX 35 index and the Italian FTSE MIB each lost 0.6%. [.EU]
The S&P 500 futures fell to their lowest level since February 5, falling 0.85% on the day. [.N]
Bonds have been hurt by the prospect of a stronger economic rebound and borrowing as President Joe Biden’s $ 1.9 trillion stimulus package progresses.
Federal Reserve Chairman Jerome Powell is giving his semi-annual testimony to Congress this week and is likely to reaffirm his commitment to keep policies simple for as long as possible in order to stimulate inflation.
“The week ahead is relatively short on the international data agenda, but following the recent spike in long bond yields, Fed Chairman Powell’s hearings in both houses of Congress (Tuesday / Wednesday) will attract a lot of interest,” said Elisabet Kopelman, US -Economist at SEB.
“The fact that the recent surge in long bond yields has been driven by higher real rates, rather than just inflationary expectations, increases the likelihood of a cautious message.”
The President of the European Central Bank, Christine Lagarde, is expected to sound reserved in a speech later on Monday.
The yields on 10-year Treasury bills have already hit 1.38%, surpassing the 1.30% level and taking the year-to-date increase to a steep 43 basis points.
BofA analysts found that 30-year bonds had returned -9.4% year-to-date, their worst start since 2013.
“Real assets outperform financial assets in 21 as cyclical, political and secular trends indicate higher inflation,” the analysts said in a note. “Surging commodities, energy delays in fashion, materials in worldly outbursts.”
Previously in Asia, MSCI’s broadest index for stocks in the Asia-Pacific region outside Japan fell 1.18% after falling from a record high last week as the rise in US bond yields unsettled investors.
The Japanese Nikkei rebounded 0.8% and the South Korean 0.1%, while the Chinese blue chips lost 1.4%.
A copper clad recovery
One of the stars was copper, a key component of renewable technology, which rose 7.7% to a nine-year peak last week. The broader LMEX base metals index rose 5.5% over the week.
Oil prices have risen, aided by the tightening of supplies and the icy weather, bringing Brent up 22% for the year to date. [O/R]
On Monday, Brent crude oil futures rose 0.7% to $ 63.33 a barrel. US crude rose 0.7% to $ 59.65.
All of this has been a boon to commodity-linked currencies, with the Canadian, Australian, and New Zealand dollars all higher for the year so far.
Sterling hit a three-year high of $ 1.4050 backed by one of the fastest vaccine rollouts in the world. England will relax lockdown restrictions every five weeks, Sky News reported Monday, hours before Prime Minister Boris Johnson announces details of its roadmap for reopening the country.
The U.S. dollar index was tied relatively to the range, with pressures from the country’s growing twin deficits offset by higher bond yields. The index was last at 90.342, not far from its beginning of the year at 90.260.
Rising government bond yields helped the dollar appreciate against the yen to 105.60 as the Bank of Japan actively capped domestic yields.
The euro remained stable at $ 1.2135, which was between the support at $ 1.2021 and the resistance at $ 1.2169.
One commodity that is not performing as well is gold, partly due to rising bond yields, partly due to investor questions about whether cryptocurrencies could provide better protection against inflation. [GOL/]
Gold was trading at $ 1,795 an ounce after starting the year at $ 1,896. Bitcoin fell 5.8% to $ 54,127 on Monday, a record high of $ 58,354.
Reporting by Ritvik Carvalho; additional coverage from Wayne Cole in Sydney; Adaptation by Larry King
Original Source © Reuters