World shares rise as retail-trader volatility subsides

Milan — World shares rose on Wednesday as volatility caused by a retail trading frenzy on Wall Street subsided on expectations of tougher regulation, while optimism about US fiscal stimulus also supported sentiment.

The MSCI world equity index was up 0.3% by 8.52am GMT, edging closer to its record peak after gains in Asia overnight and a positive open in Europe.

World shares recovered from wild swings last week when a Reddit-driven trading fever boosted heavily shorted stocks such as GameStop, forcing hedge funds to reduce their equity books.

Investors were bracing for tougher US markets regulation after treasury secretary Janet Yellen asked to discuss whether trade had been consistent with fair and efficient markets. Officials are set to meet as soon as Thursday

“Regulators have acknowledged the tumult,” noted Deutsche Bank strategists, led by Jim Reid, in a note. GameStop’s Frankfurt-listed shares fell 45% in morning trade in Europe.

Markets also cheered to renewed hopes for US President Joe Biden’s proposed $1.9-trillion Covid-19 aid bill after the Senate took steps to allow Democrats to pass Biden’s package without Republican support.

Well-received earnings updates from tech giants Alphabet and Amazon also bolstered sentiment.

Nasdaq and S&P 500 futures were up 0.8 and 0.4%, respectively.

In bond markets, Italy’s borrowing costs fell sharply on expectations former European Central Bank (ECB) chief Mario Draghi could become the country’s next prime minister, ending a political crisis.

Italy’s 10-year bond yield fell as much as eight basis points (bps) to about 0.58%, its lowest in almost two weeks. It was set for its biggest one-day fall since mid-January. The gap between Italian and German 10-year bond yields narrowed to 105.9bps from 113bps late on Tuesday.

“While significant policy initiatives seem unlikely, markets will probably view Draghi as a positive appointment,” said Paul Donovan, chief economist at UBS Global Wealth Management.

Elsewhere, spot silver, which briefly surged on Monday as small traders bought up the metal, rose 0.7% to $26.8 an ounce. That was a minor rebound from an 8% tumble on Tuesday, and analysts say the retail trader-driven rally to a near eight-year peak in the previous session has faded.

Spot gold fell 0.1% to $1,835.5 an ounce.

Oil prices continued their upswing, supported by an unexpected draw in US crude stockpiles and a producer estimate of a global oil market deficit this year. Brent crude futures hit an 11-month high and were last up 0.7% at $57.86 a barrel, while US crude futures climbed 0.5% to $55.06 a barrel, just shy of a one-year high.

In foreign exchange markets, the dollar traded near a two-month high against the euro as investors bet that the US economy will recover from the coronavirus shock faster than the eurozone.

Reuters