Picture: 123RF/BLUE BAY
Picture: 123RF/BLUE BAY

Miland/Sydney — World shares started the week on cautious ground as uncertainty over the fallout of the default of a US hedge fund tempered relief from the refloating of the ship blocking the Suez Canal.

On Monday, banks Nomura and Credit Suisse warned they were facing significant losses after the hedge fund, named by sources as Archegos Capital, defaulted on margin calls.

Investors were bracing for further block trades causing volatility in markets after a $20bn worth of fire sales on Friday reportedly linked to Archegos hit shares in some big US media and Chinese tech companies.

Developments in the Suez Canal, however, raised hopes that the vital waterway could reopen and ease global shipping backlogs, sending oil prices lower and offering support to stocks, while currency markets were largely unaffected by Archegos worries.

The MSCI world equity index, which tracks shares in 49 countries, was just above parity by 8.09am GMT, while US and eurozone volatility gauges picked up from last week’s lows. After a mixed performance in Asia overnight, European shares were flat in morning deals, while stock futures pointed to a 0.6% decline for Wall Street later in the day.

“Equity investors are apparently on edge after reports of forced liquidations by a hedge fund called Archegos Capital,” said AFS analyst Arne Petimezas in Amsterdam. “However, in our universe of bonds and money markets and forex, investors aren’t batting an eyelash.” 

Credit Suisse shares were set for their worst day in a year, down 13%, while Nomura fell 16% in its largest drop on record, limiting gains for Japanese shares.

Markets were also looking to US President Joe Biden to outline his infrastructure spending plans this week, which could supercharge an already accelerating US recovery.

“We expect the global economy to expand robustly at 6.4% this year, fueled by a large US fiscal stimulus, with positive spillovers for the rest of the world,” said Barclays economist Christian Keller in London. “Rising inflation over the coming months should be transitory, and core central banks seem committed to looking through it.”

The prospect of faster US economic growth has spurred speculation of rising inflation and weighed on US treasury prices. Yields on US 10-year notes eased a touch on to 1.648%, but were not far from the recent 13-month top of 1.754%.

European yields have been restrained by active buying from the European Central Bank, widening the dollar’s yield advantage over the euro. The euro was last little changed at $1.179, just above a five-month low hit last week.

The dollar index dipped 0.05% at 92.739, after reaching its highest since mid-November last week.

The lift in yields has weighed on gold, which offers no fixed return. Spot gold was down 0.3% at $1,726 an ounce.

Oil prices eased as markets bet the refloating of the Ever Given would allow tankers to use the waterway again. There were more than 300 vessels waiting to pass through the shipping route, which accounts for 12% of global trade.

The market will also be cautious ahead of an oil cartel Opec meeting this week, which will have to decide whether to extend supply limits, or loosen the spigots. Brent fell 0.9% to $63.99 a barrel, while US WTI crude lost 1.4% to $60.15 per barrel. 


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