Global shares held near record highs on Monday while U.S. bond yields flirted with three-month lows as investors expect the Federal Reserve to stick to its dovish mantra later this week.
Japan’s Nikkei rose 0.7% while MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.2%. Activity was limited with the region’s largest markets – China, Hong Kong and Australia – closed for a holiday.
Globally, markets were basking in the prospect of a broadening economic recovery from the coronavirus pandemic and anticipation of continuity in dovish monetary policy from the U.S. Federal Reserve. Oil stood at multi-year highs.
The MSCI world equity index, the U.S. S&P 500 and the pan-regional STOXX Europe 600 index all closed at record highs on Friday. EuroSTOXX 50 futures rose 0.2% on Monday. S&P 500 futures nudged up 0.1%
The rally came even as U.S. inflation data on Thursday exceeded market expectations and amid surging factory prices in China – both of which investors appeared to regard as temporary or manageable.
“Strip used cars, hotels, and other leisure-related reopening plays out of the (U.S.) CPI, and I am not sure the inflation outlook is the end of days many are predicting,” said OANDA analyst Jeffrey Halley in a note on Monday.
“Yes, PPIs are racing higher, but will that be reflected in higher consumer goods prices from China? I am not so sure on past experience…the honest answer is that we just don’t know yet. Certainly, that’s what the U.S. bond market is saying to us.”
Ample funds are finding their way to bonds, where the yield on 10-year U.S. Treasuries stood at 1.4602% ahead of the Fed’s policy meeting this week, having fallen to a three-month low of 1.428% on Friday.
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