News: World stocks hit highest in a week as inflation worries ebb.
LONDON (Reuters) – World stocks rose to their highest level in just over a week on Thursday after a US consumer price report calmed investor nerves over inflation and pushed the Dow Jones Industrial Average to record levels.
European stocks rose, with the pan-European STOXX 600 index hitting a year-long high, up 0.3% on the day. The UK FTSE 100 index rose 0.14%, the French CAC 40 rose 0.2% and the Italian FTSEMIB rose 1%. The German DAX traded flat.
The MSCI All Country World Index, which tracks stocks in 49 countries, rose to its highest level in just over a week, up 0.5% on the day.
Formerly in Asia, an index of regional stocks excluding Japan rose 1.7%, led by South Korean Kospi rising 2.3%, and was on track for its first three-day rise in three weeks.
China’s Shanghai Composite rose 1.9%, aided by local credit data. The Japanese Nikkei 225 gained 0.5%.
The E-Mini-Futures for the US S&P 500 Index reached their highest level in two weeks with a plus of 0.7%.
The relative calm in the government bond market also contributed to risk sentiment. The benchmark yield fell 1.5% after hitting an annual high of over 1.6% last week as investors worried that the US economy was overheating.
“If we look at history, we can see that after a while, stock markets were generally fine when yields were up,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management. “The only time both stocks and bonds are actually sold is during times when there is a major inflation scare.”
At this point, with unemployment still so high, it’s hard to see inflation becoming a problem, Onuekwusi said. Higher yields could be understood as proof that “we are actually getting out of the swamp we found ourselves in”.
“And there is a natural cap on returns – the central banks will intervene if interest rates move too quickly. They differentiate between yield levels and the speed at which the yields move. “
The European Central Bank sets its policy on Thursday and is likely to signal faster money pressures to keep borrowing costs under control, but won’t stop adding firepower to its already aggressive pandemic fight package.
The US Department of Labor announced that its consumer price index rose 0.4% in February, as expected, after rising 0.3% in January. The core CPI, which excludes volatile food and energy components, rose 0.1%, just below the estimate of 0.2%.
Analysts broadly believe that inflation will accelerate as the introduction of vaccines reopens the economy. However, concerns remain that additional incentives in the form of a $ 1.9 trillion coronavirus aid package signed by U.S. President Joe Biden could overheat the economy.
Investors will now envisage a 30-year debt auction on Thursday to cover massive short positions. A weak seven-year auction in late February added inflation and resulted in higher yields.
“The increases in US bond yields appear to have subsided somewhat after the 10-year yield hit 1.5%, although many investors remain cautious ahead of the Fed meeting,” said Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset Management.
“The Fed has been tightening its rhetoric about bond yields recently. The reality is that the economy is in a K-shaped recovery, the services sector is still in tough conditions, and the Fed is unlikely to want to let real rates rise. “
The dollar remained weaker after the economic data. The dollar index fell to its lowest level in a week, 91.547.
The euro, on the other hand, rose to its highest level in a week at USD 1.19685. The safe haven yen was flat at 108.425 per dollar.
Oil prices rose again after two days of decline after the Energy Information Administration reported that a storage facility had grown faster than expected.
US crude oil futures rose 1.3% to $ 65.25 a barrel. Brent crude oil futures rose 1.1% to $ 68.68 a barrel.
Reporting by Ritvik Carvalho; additional coverage from Sujata Rao in London and Kevin Buckland in Tokyo; Adaptation by Larry King
Original Source © Reuters