LONDON (Reuters) – World equities fell on Monday as expectations of faster economic growth and inflation boosted bonds and commodities, while rising real returns made equities look better in comparison.
MSCI’s All Country World Index, which tracks equities in 49 countries, fell 0.4% at the start of European trading.
The pan-European STOXX 600 index fell 1%, to its lowest in 10 days. The DAX in Germany, the CAC 40 in France and the IBEX 35 index in Spain each fell by 1%, the FTSE 100 of Britain lost 0.85% and the FTSE MIB index of Italy by 0.9%.
S&P 500 futures have fallen to their lowest level since February 4, up 1% on the day.
Bonds have been crushed by the prospect of a stronger economic recovery and larger loans as President Joe Biden’s $ 1.9 billion stimulus package progresses.
Federal Reserve Chairman Jerome Powell is giving his biannual testimony before Congress this week and is likely to repeat a commitment to keep policies as easy for as long as necessary to increase inflation.
“The coming week is relatively thin on the international data agenda, but after the recent rise in long-term bond yields, Fed Chairman Powell’s hearings in both houses of Congress (Tuesday / Wednesday) will be of great interest. attracts, “said Elisabet Kopelman, US economist, at BEE.
“The fact that the most recent rise in long-term bond yields is driven by higher real interest rates and not just inflation expectations increases the likelihood of a pigeon message.”
European Central Bank President Christine Lagarde is also expected to speak in a speech later Monday.
Yields on 10-year treasury notes have already reached 1.38%, breaking the psychological level of 1.30% and bringing the year-on-year rise to a steep 43 basis points.
Analysts from BofA noted that 30-year bonds have returned -9.4% so far this year, the worst start since 2013.
“Real assets outperform financial assets in ’21, as cyclical, political, secular trends suggest higher inflation,” analysts said in a note. “The yield of commodities, backward energy in fashion, material in secular interruptions.”
Earlier in Asia, MSCI’s broadest Pacific stock index fell outside Japan after declining from a record high last week as the rise in U.S. bond yields yielded uninhibited investors.
Japan’s Nikkei recovered 0.8% and South Korea 0.1%, but Chinese blue chips lost 1.4%.
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One of the stars was copper, a key component of renewable technology, which shot up 7.7% last week to a nine-year high. The broader LMEX base metal index climbed 5.5% this week.
Oil prices went through the ride, aided by stock sharpening and icy weather, which has boosted Brent profit so far this year by 22%. [O/R]
Brent crude futures rose 0.7% on Monday to $ 63.33 a barrel. US crude added 0.7% to $ 59.65.
All of this has been a boon for commodity-linked currencies, with the Canadian, Australian and New Zealand dollars higher so far for the year.
Sterling achieved a top year of $ 1.4050, helped by one of the fastest explosions in the world. British Prime Minister Boris Johnson will have to figure out a way out of COVID-19 exclusions on Monday.
The US dollar index was relatively volatile, with the downward pressure on the country’s growing twin deficits offset by higher bond yields. The index was last at 90,342, not far from where it started the year at 90,260.
Rising Treasury yields helped the dollar rise against the yen to 105.60 as the Bank of Japan actively restrained home yields.
The euro was stable at $ 1.2104, linked to support at $ 1.2021 and resistance around $ 1.2169.
One commodity that is not doing so well is gold, partly due to rising returns, and partly because investors are asking whether cryptocurrencies could be a better hedge against inflation.
Gold was $ 1,793 per ounce, starting the year at $ 1,896. Bitcoin fell $ 55,535 by 3.3% on Monday, but the year started at $ 32,216.
Reporting by Ritvik Carvalho; additional reporting by Wayne Cole in Sydney; Edited by Larry King