Markets climb to record peak as US yields hold above 5-month lows

A gauge of global stocks hit an intraday record on Monday and US Treasuries yields held above five-month lows reached last week as investors looked for signs on whether the Delta variant of the coronavirus could dent global growth.

 Asian markets rallied Monday, recovering from last week’s volatility, with traders buoyed by a record performance on Wall Street though fears about the fast-spreading Delta variant continue to weigh on sentiment.

Concerns about a slowing economic recovery due to climbing cases of the variant around the globe helped send the US Treasury note to a five-month low of 1.25% last week. The yield had risen to as high as 1.78% in March as expectations for growth picked up with rising vaccination rates.

Analysts also cited a lack of supply for the drop in yields. The Treasury will sell $58 billion in three-year notes and $38 billion in 10-year notes on Monday, followed by $24 billion in 30-year bonds on Tuesday.

Earnings season is poised to get underway this week, along with key inflation data on consumer and producer prices, as well as comments from Fed Chair Jerome Powell, which should help investors get a glimpse of economic growth prospects and the central bank’s policy path.

“If you are going to make a bet on the 10-year after it has gone from 1.75% in March to 1.25% last week, the week we start earnings, have Jay Powell on Capitol Hill twice and both CPI and PPI, that is not well thought out,” said Art Hogan, chief market strategist at National Securities in New York.

“At some point this week we will likely find a balance in between that tug-of-war of fears of inflation and fears of growth slowing down, because you really can’t have both and we are not going to have one or the other.”

Benchmark 10-year notes last fell 2/32 in price to yield 1.3628%, from 1.356% late on Friday.

Equity gains on Wall Street were modest, with financials among the best-performing sectors on the session ahead of results from JPMorgan Chase, Goldman Sachs and Bank of America on Tuesday.

The Dow Jones Industrial Average rose 85.84 points, or 0.25%, to 34,956, the S&P 500 gained 7.73 points, or 0.18%, to 4,377.28 and the Nasdaq Composite added 0.79 points, or 0.01%, to 14,702.71.


Picture used for illustrative purpose only.

European equities also moved higher, climbing to an intraday record of 461.01. The pan-European STOXX 600 index rose 0.66% and MSCI’s gauge of stocks across the globe gained 0.41% after hitting a record 727.02.

Powell’s testimony later this week will be closely eyed after the People’s Bank of China late on Friday moved to free up $154 billion for banks to buttress the economic recovery while the European Central Bank said it will discuss a change to its forward guidance on policy direction at next week’s meeting.

Concerns about dampening economic growth weighed on crude prices, outweighing the possibility of tighter supply,

U.S. crude recently fell 0.97% to $73.84 per barrel and Brent was at $74.99, down 0.74% on the day.

The safe-haven dollar moved slightly higher on the concerns about the pandemic and its potential to thwart growth.

The dollar index rose 0.088%, with the euro down 0.11% to $1.186.

Brent crude for September fell 89 cents, or 1.2%, to $74.66 a barrel by 1410 GMT. U.S. West Texas Intermediate crude for August was at $73.55 a barrel, down $1.01, or 1.4%.

Both benchmarks fell about 1% last week but remain close to highs last reached in October 2018. Brent climbed above $77 last week.

The spread of coronavirus variants and unequal access to vaccines threaten the global economic recovery, finance chiefs of the G20 large economies said on Saturday.

“Traders are now refocusing on the spread of the COVID-19 pandemic and global concerns over the new variants’ expansion are weighing on prices, despite tightening oil supplies globally,” Rystad Energy analyst Louise Dickson said.

Copper prices slipped on Monday on concerns about demand prospects in top consumer China where economic recovery appeared to be slowing, while rising inventories reinforced negative sentiment.

Benchmark copper on the London Metal Exchange was down 1.4% at $9,385 a tonne in official rings. For the last couple of weeks prices of the metal used in the power and construction industries have mostly traded in a $300 range.

“China’s central bank cutting its RRR (reserve requirement ratio) worried the market, it suggests they are trying to prop up slowing growth,” a copper trader said. “Copper stocks going up are a sign of weak demand.”

Chinese banks extended 2.12 trillion yuan ($327 billion) in new yuan loans in June, up from 1.5 trillion yuan in May, while total social financing (TSF), a widely watched measure in metals markets, rose to 3.67 trillion yuan from 1.92 trillion yuan.

“Our China strategists ... think this represents an easing on the brake rather than the start of broad-based stimulus,” BCA Research said in a note.

China’s trade data, industrial production and GDP data due this week will be watched closely for demand prospects.

 Copper stocks in LME registered warehouses at 219,175 tonnes have over the last three weeks climbed nearly 40%.

Ample supplies on the LME market are behind the discount for the cash over the three-month contract . Friday’s close at $37.30 a tonne was the highest since August 2018.