Global stocks at record high on encouraging US data

London/Tokyo — Global stock markets pushed to record highs on Wednesday as bond yields eased, after data showed US inflation was not rising too fast as the economy reopens.

With fears receding, for now, that a strong inflation reading might endanger the US Federal Reserve’s accommodative stance, European shares opened 0.1% higher.

Gains were capped after Johnson & Johnson said it would delay rolling out its Covid-19 vaccine to Europe, after US health agencies recommended pausing its use in the country after six women developed rare blood clots our of 6.8-million doses administered in the US.

Led by Hong Kong’s Hang Seng, most Asia-Pacific share indices also climbed.

Benchmark US treasury yields continued their decline, marking a fresh three-week low.

S&P 500 futures pointed to a further 0.1% rise after the S&P 500 closed at record highs on Tuesday.

Japan bucked the trend, with the Nikkei falling 0.4% as a rising number of coronavirus cases raised doubts about its economic recovery with 100 days to go until Tokyo is scheduled to host the Olympics.

MSCI’s gauge of equity performance in 50 countries advanced 0.2% to a record high.

The US consumer price index (CPI) rose 0.6% in March, the biggest increase since August 2012, as rising vaccinations and fiscal stimulus unleashed pent-up demand, data showed on Tuesday. Economists polled by Reuters had forecast the CPI would rise 0.5%.

In the 12 months to end-March, the CPI surged 2.6%. That was the largest gain since August 2018 and followed a 1.7% increase in February.

But the data is unlikely to change US Fed chair Jerome Powell’s view that higher inflation in the coming months will be transitory. Powell is scheduled to speak later in the day at the Economic Club of Washington.

The “not-too-high” inflation reading and a relatively successful 30-year US bond auction on Tuesday were the immediate reasons equity markets gained, said François Savary, chief investment officer at Swiss wealth manager Prime Partners.

“People are now waiting for earnings season, which should give us more visibility on the outlook and whether the significant market performance we’ve seen is logical and sustainable,” he said.

JPMorgan Chase and Goldman Sachs Group are among US companies reporting on Wednesday.

Deutsche Bank’s equity strategists expects S&P 500 earnings to come in 7.5% above consensus, well above the historical average of 4% but lower than in the previous three quarters.

Weaker dollar

For bond markets, the question is whether the benchmark yield can break below 1.6% from as low as 1.611% on Wednesday, Westpac strategists wrote in a client note. “That has been an important technical level, which if broken could see a quick move to 1.5%,” they said.

The 10-year US treasury yield had surged to a 14-month high of 1.776% on March 30 on bets that huge fiscal stimulus would speed up a US recovery, stoking faster inflation than Fed policymakers anticipated and prompting it to raise interest rates sooner than expected.

But yields have eased this month, in part owing to the Fed’s insistence that labour market slack will prevent the economy from overheating.

A spate of strong auction results, including Tuesday’s, has also helped tame yields. Eurozone bond yields, which had been rising in line with US treasury yields on hopes for a strong economic recovery later this year and increased inflation, dropped one to three basis points on Wednesday.

The dollar eased along with US treasury yields, slipping to a three-week low against major peers.

Gold, a traditional inflation hedge, was flat at $1,743.01/oz.

Bitcoin hit a record above $64,500, extending its 2021 rally on the day Coinbase shares are due to list in the US.

In oil markets, Brent crude futures rose 1.2% to $64.43 a barrel. US crude futures added 1.3% to $60.95.

Reuters