MILAN / SYDNEY (Reuters) – World equities fell on Monday with the approval of a $ 1.9 trillion stimulus bill by the United States Senate, again putting pressure on Treasury bonds and high tech stocks evaluations, increasing the nervousness of inflation.
These concerns overshadowed the prospect that the stimulus would give another boost to the world’s No. 1 economy, probably helping global growth to recover more quickly from the slowdown in COVID-19.
Analysts expect a sharp acceleration in inflation, fueled in part by the latest spike in oil prices, which on Monday rose above $ 70 for the first time since the start of the pandemic.
“Between the reflection, the risk of inflation and the valuations of the shares, there are many reasons for the market to be nervous about the revaluation of the bonds,” said strategist Florent Pochon of Natixis.
“Stock valuations will continue to be a burning issue, particularly for excessively wealthy sectors,” he said, adding, however, that sales should be seen as buying opportunities, given that central banks remain “structurally peaceful”. .
The world stock index MSCI < .MIWD00000PUS> fell 0.1% at 0828 GMT, as gains in Europe’s cyclical and travel stocks were offset by losses in Asia.
Chinese stocks saw their biggest drop in seven months, down 3.5%, due to concerns that Chinese authorities could tighten policy to contain high valuations.
Nasdaq futures fell 2% in the first European trades, reversing initial gains, while S&P 500 futures fell 1%, as investors neglected the benefits of the fiscal package.
According to JPMorgan, each $ 1 trillion of fiscal stimulus adds about $ 4 to $ 5 to companies’ earnings per share, which implies a 6-7% increase in the rest of the year.
Stock investors were thrilled on Friday with US data showing that non-farm payrolls increased by 379,000 jobs last month, while the unemployment rate fell to 6.2%, in a positive sign for incomes. , corporate earnings and expenses.
US Treasury Secretary Janet Yellen tried to contain inflation concerns by noting that the real unemployment rate was close to 10% and that there was still a lot of slack in the job market.
However, yields on 10-year US Treasury bonds still hit a year-on-year high of 1.626% in the wake of the data, and stood at 1.594% on Monday.
US yields increased by a significant 16 basis points during the week, while German yields fell by 4 basis points.
The European Central Bank will meet on Thursday amid rumors that it will look for ways to contain further increases in eurozone yields.
The diverging yield path boosted the dollar against the euro, which fell to a three-month low of $ 1.1891.
BofA analyst Athanasios Vamvakidis argued that the potent mix of US stimulus, faster reopening and greater consumer firepower was a clear positive for the dollar.
“Including the current proposed stimulus package and other advantages of a second-half infrastructure project, the total US fiscal support is six times greater than the EU’s recovery fund,” he said. “The Fed also supports the fact that the US money supply grows twice as fast as that of the eurozone.”
The dollar index shot up to levels not seen since the end of November and was at 92.06, well above its February low of 89.677.
The US currency also gained with the low-yielding yen, reaching a nine-month peak at 108.63, and was changing hands for the last time at 108.4.
The jump in yields weighed on gold, which offers no fixed return, and pushed it down 0.1% to $ 1,698 an ounce, just above the nine-month low.
Oil prices rose to their highest levels in more than a year after Yemen’s Houthi forces fired drones and missiles into the heart of Saudi Arabia’s oil industry on Sunday, raising concerns about production.
Prices had already been supported by a decision by OPEC and its allies not to increase supply in April. [O/R]
Brent rose 1.1% to $ 70.14 a barrel, while US oil rose 1% to $ 66.8 a barrel.
Reporting by Danilo Masoni and Wayne Cole; Edition by Alex Richardson