MILAN / SYDNEY (Reuters) – Global equities fell on Monday as US Senate approval of a $ 1.9 trillion stimulus signal put further pressure on Treasury and technology stocks with high valuations, increasing the concern of inflation.
These concerns overshadowed the prospect that the stimulus would give another boost to the world’s No. 1 economy, which would likely help faster global growth from the COVID-19 recession.
Analysts expect a sharp acceleration in inflation, caused in part by the recent rise in the price of oil, which on Monday rose above $ 70 for the first time since the pandemic began.
“Between valuing inflation, inflation risk and equity, there are many reasons for the market to be nervous about the revaluation of bonds,” said Florent Pochon, strategist at Natixis.
“Equity valuations, of course, will continue to be a hot topic in particular for excessively wealthy sectors,” he also said, adding, however, that sales should be seen as buying opportunities, as central banks remain “structurally impoverished.”
The MSCI Global Equity Index < .MIWD00000PUS> fell 0.1% at 0828 GMT, as gains from European cyclical and travel stocks were offset by losses in Asia.
Chinese equities saw their biggest decline in seven months, down 3.5%, amid concerns that Chinese officials could tighten policy to curb high valuations.
Nasdaq futures fell 2% in early European trade, investing early gains, while S&P 500 futures fell 1% as investors outperformed the benefits of the fiscal package.
According to JPMorgan, every $ 1 trillion in tax incentives adds up to $ 4 to $ 5 to corporate earnings per share, which is up 6-7% over the rest of the year.
Equity investors had been encouraged on Friday by U.S. data showing non-farm payrolls rose 379,000 jobs last month, while the unemployment rate fell to 6.2% in a positive sign of business income, expenses and profits.
U.S. Treasury Secretary Janet Yellen tried to counter inflation concerns by noting that the real unemployment rate was closer to 10% and that there was still a lot of strike in the labor market.
Still, U.S. 10-year Treasury yields still hit a one-year high of 1.626% as a result of the data and stood at 1.594% on Monday.
U.S. yields rose 16 basis points during the week, while German yields fell 4 basis points.
The European Central Bank is meeting on Thursday amid talks on what to look for ways to curb further increases in eurozone yields.
The divergent trajectory of yields pushed the dollar against the euro, which fell to a three-month low of $ 1.1891.
BofA analyst Athanasios Vamvakidis argued that the powerful mix of US stimulus, faster reopening and increased consumer firepower was a clear positive for the dollar.
“Including the proposed current stimulus package and an added benefit of a second-half infrastructure bill, total US tax support is six times greater than the EU recovery fund,” he said. “The Fed also supports the fact that the U.S. money supply is growing twice as fast as the eurozone.”
The dollar index rose to levels not seen since late November and stood at 92.06 for the last time, well above its February low of 89.677.
The U.S. currency also gained in the low-yielding yen, reaching a nine-month high of 108.63, and changed hands last time at 108.4.
The jump in yields has weighed on gold, which offers no fixed yield, and pushed it down 0.1%, to $ 1,698 an ounce and just above the nine-month low.
Oil prices rose to record highs in more than a year after Yemen’s Houthi forces fired drones and missiles at the heart of Saudi Arabia’s oil industry on Sunday, raising concerns about production.
Prices had already been backed by the decision by OPEC and its allies not to increase supply in April. [O/R]
Brent rose 1.1% to $ 70.14 a barrel, while US crude rose 1% to $ 66.8 a barrel.
Report by Danilo Masoni and Wayne Cole; Edited by Alex Richardson