Wall Street Set to Join Global Stocks Party as Investors Dump Bonds

Wall Street was set to join a march propelling global shares to record highs on Tuesday, with investors dumping government bonds in a bet that COVID-19 vaccinations and U.S. stimulus will deliver a durable economic recovery after a year of lockdowns.

Bitcoin added to the bullish mood, climbing above $50,000 for the first time.

The MSCI’s global stock index was up 0.18% at 686.30 points after hitting a record high of 686.41 points earlier in the session. A positive close would mark the 12th consecutive day of gains for the first time since January 2004.

U.S. stock futures hit record highs as investors piled into banks, energy companies other sectors that would benefit from an economic recovery. S&P500 futures were up 0.5%.

Expectations of a strong economic recovery and looser fiscal and monetary policy in the United States pushed yields on the safe-haven U.S., German, and UK government bonds higher, with gold also taking a knock.

The 10-year Treasury yields topped 1.25% for the first time in 11 months.

“I think it’s a global reflation trade very much in play, that risk-on positive investor sentiment is still very much with us,” said Derek Halpenny, head of research for global markets at MUFG.

U.S. President Joe Biden is pushing ahead with his plan to pump an extra $1.9 trillion in stimulus into the economy.

“I think this most recent leg up is a reflection of the fiscal stimulus package in the U.S. is going to be larger, a supportive backdrop,” Halpenny said.

EUROPEAN ECONOMY STIRS

The pan-European STOXX 600 hit its highest since late February 2020, lifted by some useful economic data.

The ZEW investor sentiment index in Germany, Europe’s biggest economy, rose by far more than expected in February on expectations that people will flock back to shops and other retail outlets in the coming six months.

Eurozone gross domestic product fell less than initially estimated in the last quarter of 2020, and employment edged higher against the previous three months.

Prospects for a recovery lit up commodities, with the European mining index hitting its highest level since July 2011.

“The big picture is that there is an awful lot of enthusiasm for recovery when it comes to the vaccine program,” said Michael Hewson, chief market analyst at CMC Markets.

Recovery hopes in Britain sent sterling to 2-1/2 year highs, just short of $1.40 against the dollar.

The euro crept 0.3% higher to $1.21590.

The U.S. dollar index, at 90.242, was mired at a three-week low as growing optimism about recovery sent investors into riskier currencies, including the euro and British pound.

Market sentiment in Europe was helped by gains overnight in Asian shares, with Japan’s Nikkei blue-chip index up 1.28% at a 30-year high.

Ord Minnett adviser John Milroy said that while share markets were positive, investors were becoming wary of the future risk of inflation due to central bank and government stimulus programs in place around the world.

“There is a clear sense with rates staying low for some time yet and investor appetite for equities staying strong, we will likely see markets hold up for some time yet,” Milroy told Reuters.

Investors are looking to the minutes from the U.S. Federal Reserve’s January meeting, due to be published on Wednesday, to confirm its commitment to maintaining its dovish policy stance over the near future. That, in turn, is set to keep a lid on bond yields.

Oil prices jumped to a 13-month high as a deep freeze due to a severe snowstorm in the United States boosted power demand and threatened oil production in Texas.

Brent crude was trading at $63 a barrel, off 0.47%, after rising to its highest since January 2020 in the previous session. U.S. West Texas Intermediate (WTI) crude futures gained 0.3%, to $59.65 a barrel.

(Additional reporting by Tomo Uetake in Sydney; Editing by Nick Macfie, Mark Potter, and Alison Williams)

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