Global Markets – Stocks pause as bond selling continues

Global Markets - Stocks pause as bond selling continues

SYDNEY / NEW YORK, January 12 (Reuters) – Shares stabilized on Tuesday, retreating from record highs as political unrest in Washington stopped and coronavirus cases rose, despite continued US Treasury bond sales as investors believed in a big spending government.

The yield on the US government’s benchmark 10-year debt, which rises when prices fall, rose 2.4 basis points, reaching a ten-month high of 1.1580%.

The MSCI’s broadest index of Asia-Pacific stocks outside of Japan fell 0.5% after touching an all-time high on Monday, led by a 2.6% decline in South Korea as investors took some profits from Kospi’s rally.

Pharmaceutical makers raised Japan’s Nikkei index to its highest level in three decades after reports of another effective treatment for Covid-19, although the index fell to 0.16% in the afternoon.

Strong inflows helped Chinese companies rise 1.11%.

S&P 500 futures are down 0.05%, and London’s FTSE futures are down 0.13% in Asia on Tuesday.

The bullish US dollar held on to four days of gains against the other major currencies, to keep the euro and the yen near their lowest levels in several weeks.

“We have seen a very strong week (in equities) and I think the downside moves that we are seeing are some profit taking,” said Chad Badwitz, chief investment officer at Talaria Capital in Melbourne.

“I don’t think high interest rates or inflation expectations are a concern for stocks at the moment.”

Political ambiguity softened the mood somewhat as Democrats introduced a resolution to impeach US President Donald Trump, accusing him of fomenting a revolt in the wake of a violent attack on the Capitol building last week.

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Overnight, the Nasdaq led modest losses on Wall Street, dropping 1.3% as investors sold tech giants who took action against Trump and his supporters.

Twitter fell 6.4% on Monday after it permanently suspended Trump’s account last Friday.

Short pressure

The yield curve in the United States is declining because investors are expecting a US government with big spending and big borrowing after the Democrats took control of both houses of Congress last week.

The yield on the 10-year US Treasury has already risen 23 basis points this year, and the difference between the 2-year and 10-year Treasury yields is now wider than 100 basis points for the first time since July 2017.

“Treasury bonds are back to March levels,” said Mark Purdue, chief information officer of Darling Macro in Sydney.

“What differs from time to time is clearly the situation around COVID, the policy of the Federal Reserve and the main thing is the new government in the United States, but some of these other factors could reassert themselves in the short term.”

The massive sell-off has boosted stocks as they put the brakes on their dollar short positions. The renewed focus on inflation expectations will have investors closely watching US CPI data due out on Wednesday.

Meanwhile, the dollar index bounced 1.5% from its lowest level in nearly three years last week, as investors trimmed what became very large short positions.

Elsewhere, investors are expecting guidance on the extent to which executives see a recovery in 2021 earnings and the economy from results and conference calls from JPMorgan, City and Wells Fargo on Friday.

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US crude was slightly lower at $ 52.16 a barrel and Brent crude fell 0.22% to $ 55.54.

Gold, which was sold as US yields rose because it did not pay interest, settled at $ 1,850 an ounce.

Co-reporting by Paulina Duran in Sydney and Chibuicki Ugo in New York. Written by Tom Westbrook. Edited by Sam Holmes and Leicolin Fest

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