Global stocks rallied Thursday after the Federal Reserve underscored its pledge to maintain its support for the Covid-19 economic recovery.
The European Stoxx 600 index rose 0.5 percent, pushing above the record set on Tuesday, wiping out pandemic losses. The UK’s FTSE 100 also rose 0.5 percent after its mid-cap equivalent, the FTSE 250, hit an all-time high on Wednesday.
US Treasuries were stable, yielding about 1.65 percent on the 10-year bond. Bond markets have suffered from heavy selling in recent months as investors worried that the Fed’s very loose monetary policy would boost the economic recovery from the pandemic and fuel inflation.
Minutes of the central bank policy meeting, released Wednesday, showed that Fed policymakers were largely optimistic about the chances of a sustained rebound in inflation and were determined to keep policies lenient until employment recovered from the pandemic.
“Those big mental adjustments by the market that reflect on the growth outlook and what that would mean for inflation have been completely digested,” said April LaRusse, chief of investment specialists at Insight Investment.
The S&P 500 closed at a new high following the Fed’s reading, breaking a record set by the blue chip index set Monday. Futures trading pointed to a 0.3 percent rise for the index at the opening bubble on Thursday and a 0.8 percent rise for the tech-heavy Nasdaq as US tech groups eased off bond market sales that had hit growth stocks .
Gold marched to a three-week high, while the US dollar fell 0.3 percent against a basket of major currencies.
“After a record rally in global equities last year, we are seeing slower progress from here. Unlike November last year, the shares are no longer lagging behind [behind] the strong economic news, ”warned Matthew Garman, Morgan Stanley equity strategist.
Stock traders were unimpressed by the news of a sweeping international corporate tax reform proposed by the Biden government that could see hefty tax bills for some multinational corporations.
Samy Chaar, chief economist at Lombard Odier, said the pressure on revenue from tax hikes would be offset by the high level of stimulus packages driving demand. “If what happens on the tax front results in more spending, it will eventually be considered a net positive,” he said.
Tobias Levkovich, chief US equity strategist at Citi, said investors were overly optimistic about the prospect of tax hikes.
“Sentiment is in very worrying territory, as is valuation, but cash flows continue to push indices up. Huge fiscal stimulus and supportive central banks have created the idea that there is no need to be risk averse, ”said Levkovich.
Data from Japan’s Treasury Department showed that investors in the country dumped ¥ 2.1 trillion in government foreign debt during the bond market turmoil in February, the first month of net sales since May 2020. US and Australian bonds suffered the largest outflows, while Japanese investors largely retained their position in UK and European debt.
Asian stock markets largely closed in positive territory on Thursday. Hang Seng in Hong Kong added 1.2 percent, the S&P ASX 200 in Australia was up 1 percent and the CSI 300 in China was up 0.2 percent. The Japanese Topix lost 0.8 percent.