European stock and bond yields rose on Thursday after a tough day for global markets as cryptocurrencies saw a whip and the final minutes of the US Federal Reserve pointed to a tighter monetary policy to come as the pandemic recovery gained momentum.
In Europe, the Stoxx 600 index for the entire continent was up 0.6 percent and the UK FTSE 100 up 0.4 percent. Meanwhile, German 10-year government bonds and UK government bond yields both rose 0.01 percentage point as fears of tightening lingered.
In currencies, the pound rose 0.1 percent against the dollar to $ 1.41, while the euro rose 0.2 percent to fetch $ 1.22. The US dollar, measured against a basket of its peers, fell 0.2 percent.
The moves suggested a return to calm after a volatile day for stocks on Wednesday, in which the S&P 500 index closed 0.3 percent lower after falling a whopping 3 percent.
“Global risk sentiment appears to be stabilizing. . . yesterday’s fears of crypto contamination created a broad risky day in the European and US markets, which were already on shaky ground before the [Fed] minutes, ”wrote JPMorgan analysts.
Cryptocurrencies continued to experience significant volatility after Chinese regulators signaled on Wednesday that they might crack down before their own digital currencies were launched. Bitcoin, which rallied above USD 60,000 last month, fell a whopping 30 percent to a low of USD 30,101 on Wednesday, although it recovers most of its losses.
“Stocks and cryptocurrencies have shown signs of scum in recent months and were ready to relapse,” said Richard Saperstein, Chief Investment Officer at Treasury Partners.
Futures markets indicated a mixed opening for Wall Street on Thursday, with the S&P 500 opening flat and the tech-heavy Nasdaq rising 0.3 percent.
Wednesday’s minutes of the Federal Reserve indicated that some policymakers thought talks about scaling back the central bank’s $ 120 billion in monthly bond purchases should begin as the pandemic recovery warms.
Unhedged – Markets, finance and strong opinion
Robert Armstrong dissects key market trends and discusses how Wall Street’s brightest minds are responding. Sign up here to receive the newsletter delivered straight to your inbox every weekday
But the exact impact of that more aggressive tone is hard to predict, said Roger Lee, head of UK equity strategy at Investec. “It’s sort of a transition of the seasons… Obviously there will be tighter policy outlook, but how that will turn out in equities is pretty hard to predict.”
While index levels haven’t moved much, the sectoral movement has been profound for the past six weeks, he said. Technology was one of the victims as inflationary pressures in the US increased.
Lee added that tapering was unlikely to take place immediately, citing similar measures taken in 2013: “They first started talking about tapering in March; they only started in December. “
Brent crude oil fell 0.6 percent to $ 66.28 a barrel, hitting $ 70 on Tuesday, only the third time since the start of the pandemic.