European and US stock markets were poised to end a record-setting week on a steady footing, supported by bond market tranquility, as investors banked on an economic recovery from Covid-19.
The Europe-wide Stoxx 600 traded close to its record closing level from Thursday after recovering all its losses from the Covid-19 pandemic earlier in the week. The FTSE 100 dipped 0.2 per cent, having advanced 2 per cent over recent sessions to hit a one-year high.
The solid start to second-quarter stock trading this week came as the US Treasury market strengthened. Yields on the 10-year note ticked up on Friday to around 1.67 per cent but remained well below a high of 1.72 per cent on Monday.
The pull back in yields indicates a boost to prices for the crucially important bonds, which endured heavy bouts of selling last month. Volatility in the bond market spooked stock traders as investors questioned the US Federal Reserve’s ability to hold the line on monetary policy.
“The fact that Treasury yields have stopped rising is quite important,” said Sunil Krishnan, head of multi-asset funds at Aviva Investors. “It does remove a headwind for equity markets.”
Wall Street futures moved in a tight range with S&P 500 contracts 0.1 per cent up in European trading. The tech sector helped push the US blue-chip index further into record territory on Thursday. Futures in the growth-focused Nasdaq 100 pointed to a drop of 0.1 per cent at the opening bell later after a run of positive sessions.
The US Federal Reserve has maintained that the substantial rise in Treasury yields this year is supported by the improving outlook as coronavirus vaccines help the economy to reopen. The Fed has also tried to reassure investors that the surge of activity as lockdowns end, supported by President Joe Biden’s expansive stimulus, will not overheat the economy and cause a lasting rise in inflation.
Minutes of the Fed’s most recent policy committee meeting, released on Wednesday, reinforced the central bank’s commitment to keep policy loose until employment recovered from pandemic job losses. An unexpected rise in weekly new jobless claims on Thursday suggested a bumpy ride towards a revival in the labour market.
“The recovery . . . remains uneven and incomplete,” Jay Powell said on Thursday. Speaking at the IMF and World Bank meetings on the same day, the Fed chair said the central bank was still far from achieving “substantial further progress” towards its objectives of stable prices and full employment.
“The big story has been the rise in Treasury yields over the last couple of months. For the moment, the sell-off seems to be over. The nervousness on that front has subsided,” said Rupert Thompson, chief investment officer at wealth manager Kingswood.
Chinese stocks tumbled after the producer price index jumped by the most in two years. The rise in factory gate prices in March points to greater price pressures in China, where the focus has turned to the prospect of rate rises and the tightening of financial conditions. The CSI 300 index of large Shanghai and Shenzhen-listed stocks closed 1.5 per cent lower.
Elsewhere in Asia, Hong Kong’s Hang Seng closed 1.1 per cent down, Australia’s S&P/ASX 100 dipped 0.1 per cent and Japan’s Topix gained 0.4 per cent.
The dollar, as measured against a basket of other currencies, rose 0.2 per cent from Thursday’s near two-week lows.