LONDON (Reuters) – Global equities were flat on Friday, but in view of a record high, while oil fell with rising benchmark debt yields, helping to contain the latest stimulus-driven recovery.
Gains in Asian stock markets were hard to match for most European peers, after reaching the biggest increase in a year the day before. Wall Street also looks set to open lower, with S&P 500 futures falling 0.5%.
The cautionary note followed the signing of a $ 1.9 trillion stimulus project in the US on Thursday and a new dovish inclination by the European Central Bank that caused a decline in bond yields and alleviated global concerns about rising inflation.
The explosion of market optimism from these events helped Asian stocks to rise – Japan’s Nikkei increased 1.7% – but that decreased when Europe opened for business, with the STOXX Europe 600 falling about 0.6%.
That, in turn, weighed on the MSCI World Index, taking it to the red, down 0.2%, although less than 1.5% of the record set last month.
“Recently, we saw some erratic market movements between asset classes, as well as in the sectors and styles of the stock market. A digestion period, therefore, seems logical and healthy, ”said analyst Emmanuel Cau of Barclays in a note.
Biden signed the stimulus legislation before giving a televised speech in which he promised aggressive action to speed up vaccinations and bring the country closer to normal by 4 July.
Previously, the European Central Bank had said it was ready to speed up printing money to contain borrowing costs.
“The chances are that European fixed income will surpass sovereign curves, particularly in the periphery, flatten out and that the spread between the interest rate curves in the United States and Europe will widen,” said Nordea analyst Sebastien Galy.
Against this backdrop of supersensitive monetary policy, analysts largely expect inflation to rise as the launch of vaccines leads to a reopening, leading to fears that Biden’s stimulus package could overheat the economy.
“If inflation remains contained at low levels, there will be little pressure on the Federal Reserve to raise rates, and in such a scenario, robust growth and abundant liquidity may continue to drive markets upward,” said Mark Dowding, CIO at BlueBay Asset Management.
“However, if the inflation trend is upward, bond yields and interest rates will increase and this can create a much more challenging market dynamic.”
Yields on the 10-year US Treasury rose again on Friday, up 1.6% and on the way up for the seventh consecutive week.
Given market movements, all eyes will be on the next meeting of the US Federal Reserve next week, looking for clues about their views on rising yields and the threat of inflation.
In the foreign exchange markets, the dollar gained 0.5% against the yen and 0.1% against the euro and the pound, although the latter was helped by news that the economy had contracted less than expected in January.
The dollar index, in turn, which tracks the US currency against a basket of six major rivals, rose 0.5%.
Markets are expected to remain volatile in the second quarter, especially for the dollar, which was much stronger than expected earlier this year, said Cliff Zhao, chief strategist at China Construction Bank International.
“So I think the strong dollar may weigh on some liquidity conditions in emerging markets,” he said.
Oil prices declined with the appreciation of the dollar, with US oil falling 0.5% to $ 65.68 a barrel. Brent crude lost 0.5% to $ 69.27 a barrel.
Spot gold prices fell 1.1% to $ 1,702.9 an ounce.
Additional reporting by Andrew Galbraith in Shanghai and Saikat Chatterjee in London; edition of Jane Merriman, Larry King