LONDON (Reuters) – World stock markets advanced sharply on Wednesday after an impressive restart of U.S. technology stocks, while the dollar and government yields rose before an auction by the US Treasury and the subsequent inflation.
But the gains were controlled after Tuesday’s 20% increase in the doyen Tesla electric car, the Nasdaq 4% jump and the biggest one-day gain for global heavyweights Amazon and Microsoft in well over one month.
Asia rebounded from a two-month low, with China’s markets ignoring its recent central bank policy tightening concerns and Europe being helped from the start by a new historic high for Germany’s DAX.
The dollar and bond yields also rose. Traders were focused on the US bond auction and inflation data later, as well as the European Central Bank meeting on Thursday, where a response to the recent jump in borrowing costs is expected.
Mikhail Zverev, head of global equities at Aviva Investors, said Tuesday’s wild movements at major US technology companies underscored how volatile markets, increasingly dominated by oversized passive funds, are likely to be this year, while the world tries to compose itself after the pandemic COVID 19.
“The winds are blowing stronger now. The world is not a more dangerous place, a slight increase in interest rates is not a cataclysmic event … but now there is a big herd mentality with a greater propensity for rotations, ”he said.
“They are moving more often, they are moving faster and they are leaving a trail of inefficiency,” leaving markets vulnerable to large swings, he added.
The gains in Asian stocks came overnight after Chinese stocks fell to their lowest levels since mid-December the previous day, with the prospect of tighter policy and a slowdown in the economic recovery.
News that a $ 1.9 trillion US coronavirus relief package was approaching final approval sparked a global increase in bond yields on Monday. This pushed the Nasdaq more than 10% below its February 12 closing high, confirming a correction to the index.
The yield on 10-year benchmark notes was 1.540%, peaking at 1.626% on Friday after Tuesday’s $ 58 billion auction of 3-year US notes was well received.
However, many market investors remained nervous, with the next tests of the investor’s appetite for government debt later this week in the form of 10- and 30-year auctions.
“Although the bond market has stabilized somewhat, the pressures will remain,” said Naokazu Koshimizu, senior rate strategist at Nomura Securities.
“He set the price for the future normalization of the Fed’s monetary policy, making the Fed’s policy eventually neutral. But it has not yet defined the price of the chance of its policy becoming more rigid ”.
INFLATION PALPATIONS
Some investors see a real risk of overheating the United States economy and rising inflation as a result of the planned government spending boom.
U.S. consumer price data, forecast for 1330 GMT, are expected to show a slight acceleration in overall inflation in February, with analysts expecting further gains in the coming months due to the base effects of a severe economic slowdown in early 2020.
The faster launch of COVID-19 vaccines in some countries and the planned US stimulus package helped to support a more optimistic global economic outlook, the Organization for Economic Cooperation and Development said on Tuesday, by raising its growth forecast to 2021.
In the foreign exchange markets, the dollar was supported by expectations of a faster American economic recovery.
The euro fell 0.25% to $ 1.1871, not far from Tuesday’s low of $ 1.18355. The yen changed hands at 108.70 per dollar, reaching a nine-month low of 109.235 set the day before.
The Australian dollar fell 0.6% at one point, to $ 0.7672, also after the country’s main central bank rejected market talks about initial rate hikes.
Oil prices, which have risen 30% since the beginning of the year, have stabilized while concerns about a disruption in supply in Saudi Arabia have eased.
Brent oil futures recovered from an overnight fluctuation to stay at $ 67.45 a barrel, while US oil futures hovered at $ 64.18 a barrel after reaching an almost 2 1/2 year high of $ 67.98 on Monday.
Precious metals gold decreased 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 lively gold recovery,” said DailyFX exchange strategist Ilya Spivak.
Reporting by Hideyuki Sano in Tokyo and Matt Scuffham in New York; Editing by Sam Holmes, Richard Pullin and Ana Nicolaci da Costa