Global equities rebounded and government debt rebounded after last week’s turbulent trading, triggered by concerns about the possibility of breakneck economic expansion and the possibility of central banks tightening monetary policy.
Wall Street’s blue-chip S&P 500 index rose 2.6 percent, completely reversing last week’s decline, while the technology-focused Nasdaq Composite was up 3 percent. Small-cap stocks advanced even further, with the Russell 2000 up 3.4 percent – on track for their best daily performance since early January.
In Europe, the regional Stoxx 600 closed 1.8 percent higher, while both London’s FTSE 100 and Frankfurt’s Xetra Dax indices closed the session 1.6 percent higher.
Gains for global equities came as core government debt recovered on both sides of the Atlantic. The yield on the 5-year US Treasury, which was at the center of the market turmoil last week, fell 0.03 percentage point to 0.71 percent on Monday, while the yield on the 10-year German Bund fell 0.07 percentage point to minus 0.34 percent. cents.
There was less enthusiasm for the 10-year US Treasury bill, which had risen sharply on Friday. Yield rose 0.03 percentage point to 1.44 percent, although well below the 12-month high of 1.61 percent reached last week.
“It’s all about bonds,” said Willem Sels, chief investment officer at HSBC’s private bank, who said expectations for a continuation of “ample” stimulus from global central banks will provide a “powerful” boost to risky assets.
That statement came into play on Monday when Australia’s central bank said it would buy A $ 4 billion ($ 3 billion) in long-term bonds, double the usual amount, as it tried to mitigate a heavy sell-off that had hit the markets. . The Reserve Bank of Australia had boosted its short-term bond purchases last week as Australian sovereign debt faced successive waves of intense sales.
According to Bloomberg, the Australian 10-year yield fell by about 0.25 percentage points to 1.67 percent on Monday. It was the biggest rally since a period of turbulent trading in global financial markets in March last year.
Elsewhere in the region, the Japanese Topix index closed 2 percent, while the Australian benchmark S & P / ASX 200 climbed 1.7 percent. China’s CSI 300 index of stocks quoted in Shanghai and Shenzhen ended the session 1.5 percent higher and Hong Kong’s Hang Seng added 1.6 percent.
Volatility in global debt and equity markets has been fueled by growing concerns that a broad economic recovery from the pandemic could boost inflation, prompting central banks to withdraw unprecedented monetary policy support.
“Global real interest rates could rise further,” said Robert Buckland, chief global equity strategist at Citigroup. “This is bad for stock markets, especially those that tend towards high-rated growth stocks.”
He said this was especially the case in the US, where the valuations of major tech companies were supported by low interest rates.
While low interest rates increase the present value of tech groups’ future cash flows, the present value of future earnings decreases as rates rise.
Inflation expectations were raised over the weekend when the U.S. House of Representatives approved President Joe Biden’s $ 1.9 billion coronavirus stimulus package months after previous bailouts ended.
“Last week was an excellent reminder of a very important lesson: the bond market is important,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham. “But if stimulus controls get into the hands of Americans soon enough, we might be able to kick the can a little further down the road.”