MILAN / SINGAPORE (Reuters) – Optimism over the economic outlook pushed commodity prices to new highs on Tuesday, helping stocks stabilize as expectations for a conciliatory testimony from Federal Reserve Chairman Jerome Powell calmed bond yields.
The benchmark MSCI global equity index was stable near two weeklows at 9:19 a.m. GMT, helped by gains in commodity-intensive stock indexes in Asia and a rebound in European tourism stocks in the prospect of relaxing social restrictions.
British Prime Minister Boris Johnson on Monday presented a phased plan to end a COVID-19 lockdown in the world’s sixth economy.
Global equities had been weighed down in recent sessions by a rapid surge in global bond yields which fueled expectations that central banks could possibly become less accommodating in an attempt to contain inflation. Tech stocks were among the hardest hit.
But the bond market liquidation eased after European Central Bank chief Christine Lagarde said on Monday that the central bank was closely monitoring rising borrowing costs.
Investors now expect the Fed’s Powell to be just as reassuring when he testifies before Congress at 3:00 p.m. GMT.
“If there were already any expectations that Powell might try to calm rates down, then (Lagarde’s remarks) have just reinforced them,” said Giuseppe Sersale, strategist and fund manager at Anthilia in Milan.
Tech stocks and rate-sensitive sectors like utilities in Europe, however, fell, offsetting stronger travel and commodity values and pushing the regional benchmark down.
In Asia, the rally in commodities pushed Australia’s S & P / ASX 200 up 0.9%, while South Korea’s tech-laden Kospi fell 0.3%. Japanese markets have been closed for a public holiday.
Futures on Nasdaq fell 0.6% to their lowest level in three weeks after high-growth stocks such as Apple, Microsoft and Tesla pushed the index down 2.5% on Monday, while that futures on the S&P 500 edged down 0.1%.
Bond yields rose sharply this month as prospects for another US fiscal stimulus raised hopes for a faster global economic recovery. However, it is also fueling inflation concerns, prompting investors to sell growth stocks which have rallied in recent months.
“US real interest rates are now in positive territory, which has raised concerns about the consequences for stock markets,” Cesar Perez Ruiz, chief investment officer at Pictet Wealth Management said in a report.
Yields on 10-year US Treasuries edged up to 1.374%, but remained below the one-year high of 1.394% reached on Monday.
German 10-year Bund yields also rose to -0.309%, but were below the 8-month high of -0.278% reached in the previous session.
Commodity prices have strengthened again.
Oil prices jumped more than $ 1, bolstered by optimism over the rollout of the COVID-19 vaccine and a drop in production, as US supplies were slow to return after a deep freeze in Texas that shut down crude production last week.
Brent crude was last up 0.9% to $ 66.18 a barrel after hitting a new 13-month high of $ 66.79, while U.S. crude rose 1.2% to $ 62.45 per barrel.
“Oil has been caught in the broader commodities movement with a weaker dollar proving constructive for the complex,” ING strategists led by Warren Patterson said in a note.
“Meanwhile, it is also increasingly perceived that the oil market looks increasingly tight for the rest of the year.”
Copper prices, meanwhile, hit a 9-1 / 2 year high as tight supply and strong demand from major consumer China boosted confidence.
In currency markets, the dollar briefly fell to its lowest since Jan. 13 before Powell’s testimony, while commodity-linked currencies were near their highest for several years.
The dollar index rose 0.1% to 90.143, with the euro holding steady at $ 1.2151.
Reporting by Danilo Masoni in Milan and Anshuman Daga in Singapore; Edited by Ana Nicolaci da Costa