World shares pause to assess bond market’s next move

London — European shares paused on Tuesday as investors sought to guess the bond market’s next move, while weak German retail sales were a stark reminder of continued Covid-19 fallout in the region’s biggest economy.

Overnight falls in Asian stock markets, after a senior Chinese official expressed wariness about the risk of asset bubbles in foreign markets, and a drop in oil prices also weighed on sentiment, but the dollar was steady, along with US treasuries.

Analysts said a pause was to be expected after European shares had marked their best day in nearly four months on Monday when bond markets stabilised from a sharp sell-off last week.

“We are in the yield waiting room to see whether central bankers push back this week on the ambivalence we saw last week about interest rates,” said Michael Hewson, chief market analyst at CMC Markets. “Potentially, that was a mistake, giving the impression that the US did not really care about sharp rises in yields and sending the wrong message.”

The pan-European Stoxx 600 share index edged 0.2% higher, with Paris down, while Frankfurt and London eked out slim gains.

Investors will scrutinise speeches from US Federal Reserve officials, starting with Lael Brainard at 6pm GMT on Tuesday, for any tweaks to messages on bond yields.

European Central Bank (ECB) vice-president Luis de Guindos said the bank has the flexibility to counter any undesired rise in bond yields, helping soothe the German bund in early trading.

“We will have to see whether this increase in nominal yields will have a negative impact on financing conditions,” De Guindos told Portuguese newspaper Público in comments published on Tuesday.

Among the day’s economic data, German retail sales tumbled more than expected in January as an ongoing lockdown to fight the coronavirus pandemic curtailed retail spending.

US stock futures were weaker.

China bubble warning

Shares in mainland China and Hong Kong fell after a top regulatory official expressed concern about the risk of bubbles bursting in foreign markets.

“Financial markets are trading at high levels in Europe, the US and other developed countries, which runs counter to the real economy,” Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, told a news conference.

Chinese blue-chips slipped 1.3% while Hong Kong’s Hang Seng index lost 1.2%.

MSCI’s broadest index of Asia-Pacific shares excluding Japan slipped 0.33%. Japan’s Nikkei was down 0.8% as some investors booked profits on defensive energy and utility shares before the end of the fiscal year in March.

US stocks rallied overnight, with the S&P 500 posting its best day in nearly nine months, as bond markets calmed after a month-long sell-off.

US stocks were roiled last week when a sell-off in treasuries pushed the 10-year treasury yield to a one-year high of 1.614%. The 10-year yield was flat at 1.4308%.

Bitcoin fell 1% to $49,135 after rising nearly 7% on Monday. The dollar index was up 0.3% against a basket of currencies to stand at 91.32. A stronger dollar weighed on gold, which stood at $1,719.74 an ounce, down 0.2%.

Oil prices slid on expectations that oil cartel Opec would agree to raise oil supply at a meeting this week. Brent crude dropped 68c, or 1.05%, to $63.01 a barrel. US West Texas Intermediate (WTI) crude fell 58c, or 0.9%, to $60.05 a barrel.

Reuters