LONDON (Reuters) – World stock markets rallied Wednesday following a stunning reboot in US technology stocks, as dollar and benchmark government returns both tapped ahead of a major US Treasury auction and later inflation.
But gains were moderate after Tuesday’s 20% rise in electric car doyen Tesla, a 4% jump in the Nasdaq and the biggest one-day gains for global heavyweights Amazon and Microsoft in just over a month.
Asia had bounced back from a two-month low as Chinese markets renounced their recent central bank policy concerns and Europe was helped early on by a new all-time high for the German DAX.
Dollar and bond yields also rose. Traders later focused on the US bond auction and inflation data, as well as Thursday’s meeting of the European Central Bank, where they are expected to respond to the recent hike in funding costs.
Mikhail Zverev, head of global equities at Aviva Investors, said Tuesday’s wild moves of the big US tech underscored how volatile markets, increasingly dominated by super-sized passive funds, are likely to be this year as the world tries to reset after the COVID. -19 pandemic.
“The wind is blowing harder now. The world is no more dangerous, a mild hike in interest rates is not a catastrophic event … but there is now a great herd mentality with a greater tendency for rotations, ”he said.
“They move more often, they move faster and they leave a trail of inefficiency,” leaving markets vulnerable to large swings, he added.
Gains in Asian equities came overnight after Chinese equities fell to their lowest level since mid-December the day before, in the face of tighter politics and a slowing economic recovery.
News that a US $ 1.9 trillion coronavirus aid package was nearing final approval had led to a global spike in bond yields on Monday. That had pushed the Nasdaq more than 10% below its February 12 high, confirming a correction for the index.
Benchmark 10-year notes yield was 1.540%, peaking at 1.626% on Friday, after Tuesday’s auction of $ 58 billion worth of US 3-year notes was well received.
Still, many market investors have remained tense, with the following tests of investors’ interest in government debt set to take place later this week in the form of 10- and 30-year auctions.
“While the bond market has stabilized a bit, the pressure will remain,” said Naokazu Koshimizu, senior interest rate strategist at Nomura Securities.
“It priced in the future normalization of the Fed’s monetary policy, and the Fed’s policy eventually became neutral. But it has not yet priced in the chance of a tighter policy. “
INFLATION PALPATIONS
Some investors see a real risk of an overheated US economy and higher inflation as a result of the planned boom in government spending.
US consumer price data to be expected at 1330 GMT is expected to show a slight acceleration in overall inflation in February, with analysts expecting further gains in the coming months on the back of base effects from a severe economic downturn in early 2020.
The faster rollout of COVID-19 vaccines in some countries and the planned US stimulus package helped underpin a better global economic outlook, the Organization for Economic Co-operation and Development said on Tuesday in raising its growth forecast for 2021.
In the currency markets, the dollar was supported by expectations of a faster economic recovery in the US.
The euro lost a whopping 0.25% to $ 1.1871, not far from Tuesday’s 3 1/2 month low at $ 1.18355. The yen changed hands at 108.70 a dollar after hitting a nine-month low of 109,235 the previous day.
The Australian dollar lost 0.6% to $ 0.7672 at one point, even after the country’s largest central banker rejected market chatter about early rate hikes.
Oil prices, which have risen 30% since the beginning of the year, have meanwhile stabilized as concerns about a disruption in supplies to Saudi Arabia abated.
Brent crude oil futures rebounded from overnight swings to remain at $ 67.45 a barrel, while US crude oil futures hovered at $ 64.18 a barrel after hitting nearly 2 1 / barrel. 2-year high of $ 67.98 Monday.
Precious metal gold fell 0.1% to $ 1,714.55 an ounce after rising more than 2% on Tuesday.
“There is an element of corrective price action after a very spirited gold rebound,” said DailyFX currency strategist Ilya Spivak.
Reporting by Hideyuki Sano in Tokyo and Matt Scuffham in New York; Adaptation by Sam Holmes, Richard Pullin and Ana Nicolaci da Costa