LONDON - World stocks clawed back towards record highs on their third day of gains on Thursday as the dollar dropped to a three-year low, after top Federal Reserve and European Central Bank officials attempted to talk down rising bond market yields.
There was a lot to keep tabs on. A renewed retail frenzy re-ignited the likes of GameStop, bets on US$70 a barrel oil and a near decade-high in copper prices rallied commodity currencies - and despite all the central bank talk, bond yields were still rising.
MSCI’s world equities index, which spans 50 countries, was up 0.45 percent after gains in Asia and a decent morning in Europe where oil and gas stocks enjoyed a 2 percent jump, but things were starting to turn bumpy.
Nasdaq futures were down 1 percent on Wall Street. The index has dropped for seven out of the last eight days as investors have moved out the super-charged tech and internet stocks that surged when COVID-19 forced people to stay at home.
Apple, Amazon, Microsoft, Facebook and Netflix were all down between 0.9 percent and 1.3 percent before the bell.
“There are two clear stories now” said CMC Markets senior analyst Michael Hewson. “You have the concerns about rising yields, and they are continuing to move higher today, and then you have got an economic recovery story, which is helping lift the more moderately-valued parts of the market.”
Federal Reserve Chair Jerome Powell said on Wednesday that US rates could remain low for years and ECB board member Isabel Schnabel said on Thursday the bank would fight any big increases in inflation-adjusted market rates.
“A too-abrupt increase in real interest rates on the back of improving global growth prospects could jeopardise the economic recovery,” she said. “Therefore, we are monitoring financial market developments closely.”
But bond markets were not playing ball. Benchmark Germany Bund yields climbed 4 basis points and US 10-year Treasury yields hit 1.45 percent and their way to their biggest monthly rise since Donald Trump’s US election victory in late 2016.
Focus will be on the Labor Department’s weekly jobless claims report, which is expected to show fewer Americans filed new claims for unemployment benefits last week.
In the FX markets, the safe-haven US dollar index slumped to a three-year low as the Fed’s stance, ongoing progress with COVID vaccination programmes and commodity market uplift boosted riskier currencies instead.
The Australian and Canadian dollars both hit three-year highs of $0.7980 and C$1.2477 per US dollar respectively.
The euro touched a six-week high of US$1.2235 too, whereas the safe-haven yen and Swiss franc both weakened.
“It is pretty clear that there is a strong concentration in the commodity currencies,” said Saxo Bank’s John Hardy. “Even with emerging markets you are seeing it to a degree,” he added, pointing to how big energy importers like Turkey’s lira had faded.
Marathon not a sprint
Brent oil climbed to a 13-month high of US$67.30 of after US government data on Wednesday showed a drop in crude output as a deep freeze in Texas disrupted production last week.
Copper prices moved to over US$9,500 a tonne in London. The key industrial metal now at its highest level in almost a decade and could log its biggest monthly gains in 15 years this month.
In a possible sign of a renewed retail-driven frenzy in equity markets, GameStop’s Frankfurt-listed shares trebled as they opened on Thursday, overshooting the videogame retailer’s 100 percent surge on Wall Street overnight.
Other so-called “stonks” - an intentional misspelling of “stocks” - favoured by retail traders on sites such as Reddit’s WallStreetBets had also leapt again, although explanations for the moves were tenuous.
Some online stock watchers had even pointed to a picture posted by an activist GameStop investor of a McDonald’s ice cream cone with a frog emoji as a cryptic sign.
“It’s a marathon, not a sprint. Whatever happens resist the urge to sell. The longer we hold the higher it goes,” said @catchme1fyoucan, one user in Italy of the retail trading platform eToro, in a discussion on GameStop.
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