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World shares sink as bond yields, commodities surge

Stock MarketsFeb 22, 2021 06:27AM ET
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2/2 © Reuters. FILE PHOTO: A man wearing a protective face mask walks past a screen displaying a graph showing recent Nikkei share average outside a brokerage, amid the coronavirus disease (COVID-19) outbreak, in Tokyo 2/2

By Ritvik Carvalho

LONDON (Reuters) - World shares sank on Monday as expectations for faster economic growth and inflation battered bonds and boosted commodities, while rising real yields made equity valuations look more stretched in comparison.

MSCI's All Country World Index, which tracks shares across 49 countries, was down 0.4% after the start of European trade.

The pan-European STOXX 600 index was down 1%, at its lowest in 10 days. Germany's DAX, France's CAC 40 and Spain's IBEX 35 index fell 1% each, Britain's FTSE 100 lost 0.85% and Italy's FTSE MIB index fell 0.9%.

S&P 500 futures fell to their lowest since Feb. 4, down 1% on the day.

Bonds have been bruised by the prospect of a stronger economic recovery and greater borrowing as President Joe Biden's $1.9 trillion stimulus package progresses.

Federal Reserve Chair Jerome Powell delivers his semi-annual testimony before Congress this week and is likely to reiterate a commitment to keeping policy super easy for as long as needed to drive inflation higher.

"The coming week is relatively thin on the international data agenda, but after the recent rise in long bond yields, Fed Chairman Powell's hearings in both chambers of Congress (Tuesday / Wednesday) will be attracting great interest," said Elisabet Kopelman, U.S. economist at SEB.

"The fact that the most recent rise in long bond yields has been driven by higher real interest rates and not just inflation expectations increases the probability of a dovish message."

European Central Bank President Christine Lagarde is also expected to sound dovish in a speech later Monday.

Yields on 10-year Treasury notes have already reached 1.38%, breaking the psychological 1.30% level and bringing the rise for the year so far to a steep 43 basis points.

Analysts at BofA noted 30-year bonds had returned -9.4% in the year to date, the worst start since 2013.

"Real assets are outperforming financial assets big in '21 as cyclical, political, secular trends say higher inflation," the analysts said in a note. "Surging commodities, energy laggards in vogue, materials in secular breakouts."

Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan went flat, after slipping from a record top last week as the jump in U.S. bond yields unsettled investors.

Japan's Nikkei recouped 0.8% and South Korea 0.1%, but Chinese blue chips lost 1.4%.

A COPPER-PLATED RECOVERY

One of the stars has been copper, a key component of renewable technology, which shot up 7.7% last week to a nine-year peak. The broader LMEX base metal index climbed 5.5% on the week.

Oil prices have gone along for the ride, aided by tightening supplies and freezing weather, giving Brent gains of 22% for the year so far. [O/R]

On Monday, Brent crude futures were up 0.7% at $63.33 a barrel. U.S. crude added 0.7% to $59.65.

All of that has been a boon for commodity-linked currencies, with the Canadian, Australian and New Zealand dollars all higher for the year so far.

Sterling reached a three-year top at $1.4050, aided by one of the fastest vaccine rollouts in the world. British Prime Minister Boris Johnson is due to outline a path from COVID-19 lockdowns on Monday.

The U.S. dollar index has been relatively range-bound, with downward pressure from the country's expanding twin deficits balanced by higher bond yields. The index was last at 90.342, not far from where it started the year at 90.260.

Rising Treasury yields has helped the dollar gain against the yen to 105.60, given the Bank of Japan is actively restraining yields at home.

The euro was steady at $1.2104, corralled between support at $1.2021 and resistance around $1.2169.

One commodity not doing so well is gold, partly due to rising bond yields and partly as investors question if crypto currencies might be a better hedge against inflation.

Gold stood at $1,793 an ounce, having started the year at $1,896. Bitcoin was off 3.3% on Monday at $55,535, but started the year at $32,216.

World shares sink as bond yields, commodities surge
 

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Comments (10)
Patrecia Sapulette
Patrecia Sapulette Feb 22, 2021 6:42AM ET
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".. fell to the lowest since"..like yesterday? Such wOw. Much MAgnifIcenCe. Thanks for the free platform Inv.com, no thanks for rEutErs.
Zach Lohman
Zach Lohman Feb 22, 2021 6:35AM ET
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It’s funny; there actually were so-called investors buying bonds with no yield right along with the central banks. Imagine buying something that literally can’t go higher.I understand the equity investors; low rates make them feel like there’s no choice...but the bond guys, lol.
Jim Jones
Jim Jones Feb 22, 2021 6:32AM ET
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Good thing the FED can buy stocks now.
Cody Vawter
Cody Vawter Feb 22, 2021 12:53AM ET
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Im selling anything with a P/e over 70 other then NVDA
Ronald Warren
Ronald Warren Feb 21, 2021 11:10PM ET
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Be Advised! This market will burn down when Kamala Harris declares Biden incompetent and takes his position as president. My best guess is late July when models are showing the DOW taking a 33% dump!!
Ronald Warren
Ronald Warren Feb 21, 2021 11:10PM ET
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I take no political sides when it comes to my investing and trading. Kamala will take over soon, because Biden has dimensia. It will cause a market upheaval. You can keep your head in the sand.
Fomo Yolo
Fomo Yolo Feb 21, 2021 11:10PM ET
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woooow... he is like... from outer space?
John Mars
John Mars Feb 21, 2021 11:10PM ET
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Ronald Warren  Please figure out how to spell
The Chad Bull
The Chad Bull Feb 21, 2021 10:45PM ET
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This is the top. Hope you got out in time bulls
Art Fire
Art Fire Feb 21, 2021 10:31PM ET
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Ready for the great melt up.
William Smith
William Smith Feb 21, 2021 10:31PM ET
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The melt up will last until the tax hike is passed. The crash follows its passage.
William Smith
William Smith Feb 21, 2021 10:03PM ET
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The market will tank once Biden's tax hikes get passed. $15 minimum wage will destroy small businesses and lead to huge unemployment. The good times will end quickly under Biden's destructive rule.
Jurgen Daub
Jurgen Daub Feb 21, 2021 10:03PM ET
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better times will come.
William Smith
William Smith Feb 21, 2021 10:03PM ET
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Jurgen, you have a very rude awakening awaiting you if you believe your own drivel.
Art Fire
Art Fire Feb 21, 2021 10:03PM ET
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Good times? What a privileged comment. I'm not sure those struggling with the problems of the pandemic call this "good times"
Silver Bull
Silver Bull Feb 21, 2021 8:44PM ET
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Central banks are in a pickle, damned if they do, damned if they don't. You dug your own grave now die in it.
Dave Jones
Dave Jones Feb 21, 2021 8:24PM ET
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do you seriously think they are going to chuck in another 2 trilly without a yield spike or stock market selloff?
 
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