SYDNEY (Reuters) – Stock markets turned on Monday as the U.S. Senate’s passage of a $ 1.9 trillion stimulus bill heralded faster global economic growth, but also put new pressure on bonds. Treasury and highly valued technology stocks.
The upbeat economic news continued as China’s exports jumped 155% in February compared to the previous year, when much of the economy shut down to fight the coronavirus.
“With Senate approval, we expect growth momentum to pick up and we forecast global GDP growth to increase at an annualized rate of 7.5% in the intervening quarters of the year,” JPMorgan economists said in a note.
“Every $ 1 trillion of fiscal stimulus adds about $ 4-5 to EPS, which is a 6-7% increase for the rest of the year.”
However, analysts were also expecting a sharp acceleration in inflation, fueled in part by the latest rally in oil prices, which was boosting bond yields and stretching equity valuations, particularly in the high-tech space. .
That sent Nasdaq futures reversing initial gains to fall 1.0%, dragging S&P 500 futures down 0.2%.
MSCI’s broader Asia-Pacific equity index outside of Japan followed a 0.5% decline, while leading Chinese companies lost 0.9%.
Japan’s Nikkei held on to a 0.2% gain, while EUROSTOXX 50 futures continued to rise 0.8% and FTSE futures 0.9 %%.
Equity investors had been encouraged by US data showing nonfarm payrolls increased by 379,000 jobs last month, while the unemployment rate fell to 6.2% in a positive sign for income, the business spending and profits.
US Treasury Secretary Janet Yellen tried to counter concerns about inflation by noting that the true unemployment rate was closer to 10% and that there was still a lot of slack in the job market.
However, 10-year US Treasury yields still hit a one-year high of 1.625% on the data, and stood at 1.59% on Monday. Yields rose sharply by 16 basis points during the week, while German yields fell 4 basis points.
The European Central Bank is meeting Thursday amid talks to protest the recent rise in euro zone yields and perhaps reflect on ways to curb further increases.
The divergent trajectory of yields pushed the dollar against the euro, which fell to a three-month low of $ 1.1892 and was last set at $ 1.1904.
BofA analyst Athanasios Vamvakidis argued that the potent combination of US stimulus, faster reopening and increased consumer firepower was a clear positive for the dollar.
“Including the current proposed stimulus package and more benefits from a second half infrastructure bill, the total US fiscal support is six times greater than the EU recovery fund,” he said. “The Fed also supports US money supply growth twice as fast as the euro zone.”
The dollar index duly spiked to levels not seen since late November and last stood at 92,057, well above its recent low of 89,677.
It also gained on the underperforming yen, hitting a nine-month high of 108.63, and it was the last time it changed hands at 108.41.
The jump in yields has weighed on gold, which does not offer a fixed return, and left it at $ 1,705 an ounce and just above a nine-month low.
Oil prices rose to their highest levels in more than a year after Yemen’s Houthi forces fired drones and missiles into the heart of Saudi Arabia’s oil industry on Sunday, raising concerns about production.
Prices had already been supported by a decision by OPEC and its allies not to increase supply in April. [O/R]
Brent rose 1.44 dollars a barrel to 70.80 dollars, while US crude rose 1.36 dollars to 67.45 dollars a barrel.
Reporting by Wayne Cole; Edited by Sam Holmes