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Bond scares linger, investors look to Powell

EconomyMar 04, 2021 06:01AM ET
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2/2 © Reuters. A man is reflected on a stock quotation board in Tokyo 2/2

By Tom Arnold and Hideyuki Sano

LONDON (Reuters) - Worries about lofty U.S. bond yields hit global shares on Thursday as investors waited to see if Federal Reserve Chair Jerome Powell would address concerns about a rapid rise in long-term borrowing costs.

The spectre of higher U.S. bond yields also undermined low-yielding, safe-haven assets, such as the yen, the Swiss franc and gold.

Benchmark 10-year U.S. Treasuries slipped to 1.453%. They earlier touched their highest levels since a one-year high of 1.614% set last week on bets on a strong economic recovery aided by government stimulus and progress in vaccination programmes.

"Equities and yields continue to both drive and thwart one another," said James Athey, investment director at Aberdeen Standard Investments.

"Fed speech continues to express very little concern and certainly is not suggestive of any imminent action to curb the rise in yields. The Powell speech today is hotly anticipated, but I fear more out of hope than rational expectation."

The Euro STOXX 600 was down 0.5% and London's FTSE 0.6% lower.

The MSCI world equity index, which tracks shares in 49 countries, lost 0.5%, its third day running of losses.

The MSCI's ex-Japan Asian-Pacific shares lost 1.8%, while Japan's Nikkei fell 2.1% to its lowest since Feb. 5.

E-mini S&P futures slipped 0.2%. Futures for the Nasdaq, the leader of the post-pandemic rally, fell 0.1%, earlier hitting a two-month low.

Tech shares are vulnerable because their lofty valuation has been supported by expectations of a prolonged period of low interest rates.

But the market is focused on Powell, who is due to speak at a Wall Street Journal conference at 12:05 p.m. EST (1705 GMT), in what will be his last outing before the Fed's policy-making committee convenes March 16-17.

Many Fed officials have downplayed the rise in Treasury yields in recent days, although Fed Governor Lael Brainard on Tuesday acknowledged that concerns over the possibility a rapid rise in yields could dampen economic activity.

In addition, anxiety is building over a pending regulatory change in a rule called the supplementary leverage ratio, or SLR, which could make it more costly for banks to hold bonds.

"The market is likely to be unstable until this regulation issue will be sorted out," said Masahiko Loo, portfolio manager at AllianceBernstein (NYSE:AB). "There aren't people who want to catch a falling knife when market volatility is so high."

The market will also have to grapple with a huge increase in debt sales after rounds of stimulus to deal with a recession triggered by the pandemic.

The issue is not limited to the United States, with the 10-year UK Gilts yield on Wednesday touching 0.796%, near last week's 11-month high of 0.836%, after the government unveiled much higher borrowing.

On Thursday, Germany's 10-year yield was down 2 basis points to -0.31% after rising 5 basis points on Wednesday, still moving in tandem with U.S. Treasuries.

Currency investors continued to snap up dollars as they bet on the U.S. economy outperforming its peers in the developed world in coming months. The dollar rose to a roughly seven-month high of 107.33 yen.

"U.S. dollar/yen has been on a one-way trajectory since the start of 2021," said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia (OTC:CMWAY). "The brightening outlook for the world economy is a positive for both U.S. dollar/yen and Australian dollar/yen."

Other safe-haven currencies were weakened, with the Swiss franc dropping to a five-month low against the dollar and a 20-month trough versus the euro.

Other major currencies were little changed, with the euro flat at $1.2054.

Gold fell to a near nine-month low of $1,702.8 per ounce on Wednesday and last stood at $1,714.

Investor focus on a U.S. economic rebound was unshaken by data released overnight that showed the U.S. labour market struggling in February, when private payrolls rose less than expected.

Oil prices rose for a second straight session on Thursday, as the possibility that OPEC+ producers might decide against increasing output at a key meeting later in the day underpinned a drop in U.S. fuel inventories.

U.S. crude rose 0.6% to $61.65 per barrel. Brent crude futures added 0.7% to $64.54 a barrel,

Bond scares linger, investors look to Powell
 

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Comments (21)
Art Fire
Art Fire Mar 04, 2021 10:28AM ET
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I thought Crypto was supposed to be the one that was volatile and risky
Gamer Turtle
GamerTurtle Mar 04, 2021 10:28AM ET
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the new era to stock market where everything is like crypto, just 1 huge online casino.
Mike Chen
Mike Chen Mar 04, 2021 8:53AM ET
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The bull has a good run for more than a dozen years. I believe it will continue another decade. Buy and earn dividend each year. Nobody worries about recession or depression because we keep printing money!
Stacy Starner
Stacy Starner Mar 04, 2021 8:53AM ET
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Very well said
Viking Fire
Viking Fire Mar 04, 2021 8:26AM ET
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Time to go all in crypto, its less volotile than the market.
Stacy Starner
Stacy Starner Mar 04, 2021 8:26AM ET
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And more places each day accepting it
Gershom Zvi
Gershom Zvi Mar 04, 2021 7:49AM ET
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Stimulus news is needed ASAP
Gershom Zvi
Gershom Zvi Mar 04, 2021 7:44AM ET
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Nobody knows whats a bottom to buy
Gershom Zvi
Gershom Zvi Mar 04, 2021 7:33AM ET
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Biden administration is buring US stock market
Tumelo Mash
Tumelo Mash Mar 04, 2021 7:22AM ET
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Inflation is coming surely we about to be shocked at the numbers that come out and whatever Powell says if he is forced to he will raise interest rates early and that my friends is me holding my Tesla sell and Gold. You Iike it or not the trillions they printed last year and will print this year will be the reason they are forced to raise sit back and relax
Samantha Sa
Samantha Sa Mar 04, 2021 6:46AM ET
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Options now are limited. It would anyway create more malfeasance if more tools are used to suppress rising yields that are the result of currency devaluation from excessive liquidity and minimal interest rates. For long-term economic health, the opportunity is now to allow over valued markets to adjust to rising yields that are still historically low while fed rates remain nominal.
Dietmar Stahl
Dietmar Stahl Mar 04, 2021 6:34AM ET
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By May the US economy will be fully open. Demand will like not seen in 100 years. Buy every stock now!!!!
Gershom Zvi
Gershom Zvi Mar 04, 2021 6:34AM ET
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The question what to to with ETF I have They dropped catastroficslly I still keeping them
Timothy O'Tool
Timothy O'Tool Mar 04, 2021 6:34AM ET
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Gershom Zvi Don't consider this "advice," but knowing what I know, I'd buy ETFs - but only as a high interest savings options (banks are no good for saving anything). But it should be in something with growth potential in the next decade. Remember, this is buy and hold. Perhaps solar/wind, electric vehicle, artificial intelligence, self-driving tech, genetics research, outer space tech, and then anything with broad market perspective, like the whole stock market (VT/VTI), s&p, dow, etc. The question is not what to buy, it's WHEN to buy. That's the question you have to answer for yourself.
Timothy O'Tool
Timothy O'Tool Mar 04, 2021 6:34AM ET
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Don't consider this "advice," but knowing what I know, I'd buy ETFs - but only as a high interest savings options (banks are no good for saving anything). But it should be in something with growth potential in the next decade. Remember, this is buy and hold. Perhaps solar/wind, electric vehicle, artificial intelligence, self-driving tech, genetics research, outer space tech, and then anything with broad market perspective, like the whole stock market (VT/VTI), s&p, dow, etc. The question is not what to buy, it's WHEN to buy. That's the question you have to answer for yourself.
Mike Chen
Mike Chen Mar 04, 2021 2:25AM ET
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The institutions are selling so that they can buy at lower price later
djavid hosseini
djavid hosseini Mar 04, 2021 2:23AM ET
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Lol BS they just ripping the retails
Ch Ne
Ch Ne Mar 04, 2021 2:07AM ET
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Rates must first normalize to pre-pandemic levels and then consider the fiscal stimulus effects of a lot more helicopter money (which will be borrowed). There is not going to be a shortage of bond supply while demand may "demand" a few more points. Meanwhile, DCFs in action with the growth stocks.
Kaveh Sun
Kaveh Sun Mar 04, 2021 1:58AM ET
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It is Biden fault. Treasury's issuing approximately $4 trillion in government debt in 2021, according to ING Bank. Fed is buying 120b a month. More Supply than demand.
Bernard Tan
Bernard Tan Mar 04, 2021 1:58AM ET
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Biden just started working. These are Trump’s negative legacy
stanley shalala
stanley shalala Mar 04, 2021 1:58AM ET
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It is Trump fault, not Biden. Face the reality.
Samantha Sa
Samantha Sa Mar 04, 2021 1:58AM ET
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Fed's monthly 120B purchases began several months ago.
justin namon
justin namon Mar 04, 2021 1:58AM ET
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Its actually our fault. Take accountability like a man instead of blaming like a cheeto
Joel Schwartz
Joel Schwartz Mar 04, 2021 12:57AM ET
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Just raise interest rates, Powell. Everyone is overleveraged in this market bubble from retail to institutions and this is a threat to long term market and currency stability. Jusr get it over with.
Silver Bull
Silver Bull Mar 04, 2021 12:57AM ET
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He cannot raise interest rates, the entire stock market would collapse. He'd rather destroy the dollar buying bonds and bring in a Fedcoin than let rates rise.
Joel Schwartz
Joel Schwartz Mar 04, 2021 12:55AM ET
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Just raise interest rates. Everyone and their mother is in the markets trading on margain. This is the end game so just get it over with.
Tony Ab
Tony Ab Mar 04, 2021 12:30AM ET
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Fed is caught . They will not dare to tighten . I would buy gold here and i would needle on tech . Been overweight in financials ( banks ) and somewhat in oil since october of last year when no one wanted them so will likely dont add there . Yes evaluation on tech are lofty but is lots of cash splashing around so dont sweat it . Tomorrow dip is a buy . Bring it on :)
Cal Lowe
Cal Lowe Mar 04, 2021 12:24AM ET
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Powell and Biden still sleeping
Dietmar Stahl
Dietmar Stahl Mar 03, 2021 11:17PM ET
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Unbelievable unfair to everyone what seller do here. That's just devastating damage
Joel Schwartz
Joel Schwartz Mar 03, 2021 11:17PM ET
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Maybe don’t buy TSLA after an 800% run lol
Viking Fire
Viking Fire Mar 03, 2021 11:17PM ET
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Joel Schwartz to be fair they are profit harvesting the entire sector
Leon Kelly
Leon Kelly Mar 03, 2021 11:16PM ET
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He speaks at 12. so can we expect a blood bath for the first 3 hours of the market?
Dario Ruff
Dario Ruff Mar 03, 2021 11:16PM ET
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Maybe a 3760 drop nothing further
Jeremy Thornton
Jeremy Thornton Mar 03, 2021 11:16PM ET
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4 hour demand zone starts at $3767.47. Below that is another 4 hour starting at $3738.18. Then a big weekly one starting at $3718.46.
Dietmar Stahl
Dietmar Stahl Mar 03, 2021 10:34PM ET
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If you want excemptional profits you buy stock which what ever money you got. I do.
Dietmar Stahl
Dietmar Stahl Mar 03, 2021 10:33PM ET
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In May the whole US economy will be open again. Demand especially tech will be like not seen in 100 years.
Darryl Allen
Darryl Allen Mar 03, 2021 10:33PM ET
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Biden just said we're not going back to normal for another year
Simon Lyon
Simon Lyon Mar 03, 2021 10:33PM ET
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not since the Weimar Republic at least. get your wheelbarrows ready
 
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