© Reuters. FILE PHOTO: A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, passes an electronic board showing the Shanghai Composite Index, the Nikkei Index and the Dow Jones Industrial Average outside a brokerage in Tokyo, Japan, on March 7.
By Sayakat Chatterjee
LONDON (Reuters) – Global stocks jumped to a five-week high on Wednesday as investors shrugged off a broad sell-off in global bond markets, driven by a combination of high inflation and hawkish rhetoric from US policy makers.
Although two-year US Treasury yields rose 73 basis points so far in March and are preparing for their biggest monthly jump since 2004, investors have been relatively upbeat about the implications of higher yields on stock market valuations.
MSCI’s broader measure of global stocks rose 0.2% to a high on February 17, a level last seen days before Russia invaded Ukraine. The Asian gauge rose 1% to its highest level since early March.
European stocks were also higher, with the European stock index hitting a one-month high in early London trade. US stock futures pointed to small gains.
“It is as if the negative effects of inflation, higher interest rates and the uncertainties of war are no longer a concern,” said Stuart Cole, chief macro economist at Equiti Capital, adding that investors were focusing on stocks that could withstand a high inflationary environment.
Technology stocks, which have had an inverse association with interest rate hikes in the past, were the biggest drivers of the broader market’s gains, with Hong Kong’s gauge of technology stocks climbing to a three-week high.
The shattered e-commerce giant Ali Baba (NYSE:), which recently expanded its buyback program, is up 6% and in Tokyo, unfavorable technology investment firm SoftBank Group is up 7%. The main US tech index ended 2% higher overnight, trimming its year-to-date losses to 10% from 20% in mid-March.
“They have sold too much and are seeing a bit of a rally,” said John Bai Liu, portfolio manager at Tribeca Investment Partners in Sydney, but she added that she had a flavor of short hedge fund hedge fundraising rather than accumulating new money.
But the bulk of the action has been focused on bond markets, with two-year US yields stalling at a six-year high after a massive rally this month.
A sharp rise in short-term yields has flattened the US 2- to 10-year yield gap to its lowest level since the coronavirus pandemic hit global markets in March 2020. An inverted yield curve is widely seen as an indicator of future recessions in United State.
The sell-off in short-term yields pushed Fed fund futures to pricing by 190 basis points for the remainder of the year after a 25 basis point rate hike last week. Futures were roughly pricing in a potential upside of 50 basis points in May.
The sell-off in US markets reverberated elsewhere as German and UK bond yields rose, with UK inflation readings also rising. The data showed that inflation rose to a 30-year high of 6.2% last month.
Currency market activity continued to be relatively sluggish with the major forex pairs trading in tight ranges, confirming the absence of any clear directional trends with the only notable JPY.
Against the US dollar, the Japanese currency is now trading below 121 yen after Bank of Japan Governor Haruhiko Kuroda said it was too early to discuss an exit from ultra-loose monetary policy.
Commodity markets remained on alert due to the expected supply disruptions from the war in Ukraine and were resolute against the lack of tangible progress towards peace.
Oil settled higher, with futures up 1% at $116.67 a barrel and up 1% at $110.34. [O/R]
Grain prices remained supported by supply concerns, especially for delivery later in the year. [GRA/]
“These gains are a sign that the market is positioning itself without much Black Sea supply in the 2022 season,” said Tobin Gorey, agricultural commodities strategist at the Commonwealth Bank of Australia (OTC:) in Sydney.
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