The global equity rally took a breather in Tuesday as investors mulled stimulus prospects and the impact of rising inflation expectations with stocks at record highs. The dollar declined.
Stocks were little changed in Japan and Hong Kong, and retreated in South Korea and Australia. US and European futures dipped. Chinese shares gained ahead of the Lunar New Year Holiday. Earlier, US shares closed higher for a sixth straight session with the S&P 500 at a record, spurred by fresh signs the Biden administration is committed to passing a sizable aid bill to address unemployment. Treasuries advanced.
Commodities prices pointed to renewed optimism in the global economic recovery. Brent oil extended an advance above $60 a barrel on signs the global market is tightening and demand is improving. Bitcoin jumped to a record after Tesla Inc. bought $1.5 billion of the cryptocurrency. Asian cryptocurrency shares surged. The average yield on US junk bonds dropped below 4% for the first time ever on Monday.
Investors are taking comfort from vaccine rollouts and signs of progress on stimulus, though worries remain about stretched valuations. With inflation expectations near the highest since 2013, questions have also begun to be raised about when the so-called reflation trade in bonds could start to threaten equities.
“We are getting to the point where we have to start worrying about the risk of how do we pull back on that stimulus, will it cause the economy to overheat, are these valuations becoming too expensive,” Saira Malik, Nuveen head of global equities, said on Bloomberg TV. “That is something we are going to be grappling with as the year goes on.”
Here are some key events coming up:
- Earnings season continues with companies including Honda Motor, Cisco Systems, Societe Generale and L’Oreal.
- EIA crude oil inventory report comes Wednesday.
- Sweden will set monetary policy on Wednesday.
- Federal Reserve Chair Jerome Powell will speak on a webinar Wednesday.
- The US consumer price index comes Wednesday.
- Lunar New Year public holidays begin in nations across Asia, with China breaking for a week.
- Bank of Russia’s policy decision comes Friday.
These are the main moves in markets
- S&P 500 futures dipped 0.1% as of 7:10 a.m. in London. The S&P 500 Index increased 0.7%.
- Topix index rose 0.1%.
- Australia’s S&P/ASX 200 Index fell 0.9%.
- Kospi index fell 0.2%.
- Hong Kong’s Hang Seng Index rose 0.2%.
- Shanghai Composite Index rose 2%.
- Euro Stoxx 50 futures fell 0.2%.
- The yen rose 0.4% to 104.79 per dollar.
- The offshore yuan was little changed at 6.4401 per dollar.
- The Bloomberg Dollar Spot Index dipped 0.2%.
- The euro was at $1.2080, up 0.3%.
- The yield on 10-year Treasuries fell one basis point to 1.16%.
- Australia’s 10-year bond yield fell four basis points to 1.23%.
- West Texas Intermediate crude rose 0.7% to $58.38 a barrel.
- Brent crude gained 0.8% to $61.07 a barrel.
- Gold rose 0.5% to $1,840 an ounce.