MILAN / SYDNEY (Reuters) – World stocks fell on Monday as the US Senate passed a $ 1.9 trillion stimulus bill that put new pressure on high-valued government bonds and technology stocks, causing inflation to tickle.
These concerns overshadowed the prospect that stimulus packages would give new impetus to the world’s largest economy, likely to accelerate global growth after the downturn of COVID-19.
Analysts expect inflation to accelerate sharply, boosted in part by the latest spike in oil prices, which rose above $ 70 for the first time since the pandemic began on Monday.
“Between reflation, inflation risk and equity valuations, there are plenty of reasons why the market is nervous about bond re-pricing,” said Natixis strategist Florent Pochon.
“Equity valuations will of course remain a burning problem, especially for overly wealthy sectors,” he also said, but added that sell-offs should be seen as buying opportunities as central banks remain “structurally subdued”.
The MSCI World Stock Index < .MIWD00000PUS> fell 0.1% against 0828 GMT as gains in European cyclical and travel stocks were offset by losses in Asia.
Chinese equities posted their largest decline in seven months, down 3.5%, amid concerns that Chinese officials could tighten policies to rein in high valuations.
Nasdaq futures fell 2% in early European trading, reversing early gains, while S&P 500 futures declined 1% as investors looked beyond the benefits of the fiscal package.
According to JPMorgan, every $ 1 trillion in fiscal stimulus adds about $ 4- $ 5 to corporate earnings per share, which is an increase of 6-7% for the rest of the year.
Equity investors had taken heart on Friday by US figures showing that nonfarm payrolls rose 379,000 jobs last month, while the unemployment rate fell to 6.2%, which is a positive sign for incomes, expenses and corporate earnings.
US Treasury Secretary Janet Yellen tried to address inflation concerns by noting that the actual unemployment rate was closer to 10% and that there was still a lot of slack in the labor market.
Still, in the wake of the data, 10-year US Treasury yields still hit their one-year high of 1.626%, reaching 1.594% on Monday.
US interest rates rose 16 basis points this week, while German interest rates even fell 4 basis points.
The European Central Bank will meet on Thursday during a talk and will look at ways to curb further increases in eurozone yields.
The diverging interest rate trajectory boosted the dollar against the euro, which fell to a three-month low of $ 1.1891.
BofA analyst Athanasios Vamvakidis argued that the strong mix of US stimulus, faster reopening and increased consumer firepower was a clear positive for the dollar.
“Including the current proposed stimulus package and further up from a second-half infrastructure bill, total US fiscal support is six times greater than the EU’s recovery fund,” he said. “The Fed is also backing with the US money supply growing twice as fast as the Eurozone.”
The dollar index soared to levels not seen since late November, last standing at 92.06, well above the February low of 89.677.
The US currency also gained on the low-yielding yen, reaching a nine-month high of 108.63, last changing hands at 108.4.
The rise in yields weighed on gold, which offers no fixed return, pushing it 0.1% to $ 1,698 an ounce and just above its nine-month low.
Oil prices soared at their highest levels in more than a year after Yemeni Houthi forces fired drones and rockets into the heart of Saudi Arabia’s oil industry on Sunday, raising concerns about production.
Prices were already supported by a decision by OPEC and its allies not to increase the offer in April. [O/R]
Brent climbed 1.1% to $ 70.14 a barrel, while US crude oil rose 1% to $ 66.8 a barrel.
Reporting by Danilo Masoni and Wayne Cole; Editing by Alex Richardson