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London — World shares were struggling to extend a bounce off four-week lows on Tuesday, oil prices were at their highest in well over two years, while indecisive bond markets were stuck flip-flopping on inflation and interest rate moves.
Europe’s Stoxx 600 was quick to give back early gains as falls in technology and healthcare stocks — the main winners from the Covid-19 pandemic — offset a modestly higher UK FTSE with its oil and mining firms.
It bucked some solid gains in Asia and Wall Street overnight, but government bond prices fell as fixed-income investors continued to adjust to last week’s US Federal Reserve shift, when policymakers brought forward rate hike forecasts.
All eyes are on Fed chair Jerome Powell, who appears before Congress from 6pm GMT, though investors were also starting to square up positions ahead of the start of the second half of the year.
“I’m not sure anyone really knows what this move by the Fed really means at the moment,” said CMC Markets senior strategist Michael Hewson. “I’m not sure it’s changed a damn thing. The Fed is going to taper its purchases ... it’s just about finessing that message.”
Oil markets weren't affected by developments. Brent crude hit $75/bbl for the first time since April 2019 as traders remained bullish about a quick recovery in global oil demand as economies reopen.
Brent gained 1.9% and US WTI crude had jumped 2.8% on Monday. Both benchmarks have now risen for the past four weeks on optimism about the pace of global Covid-19 vaccinations and an expected pickup in travel.
MSCI’s broadest index of Asia-Pacific shares outside Japan had advanced 0.4% overnight, moving above Monday’s four-week lows and notching a 4% gain so far this year.
Japan’s Nikkei led the way as it rallied 3.1%. South Korea stocks rose 0.7%, Australia put on 1.6% and Chinese stocks closed up 0.8%.
“The reopening trade is still something we are looking for in the second half of the year,” said Eric Theoret, global macro strategist at Manulife Investment Management. Europe would see the most benefit, followed by emerging markets, Theoret said.
In the currency markets, the dollar was edging higher again after gaining sharply last week in the wake of the Fed’s policy surprise.
Against the euro, it strengthened $1.1894. It climbed to 110.49 yen, and the dollar index was up 0.15% to 92.072 after giving up about 0.5% on Monday.
“The whole world was mega-short the dollar, and that in good part has probably been cleaned out already, and now we take a wee breath before the next move up,” said Westpac currency analyst Imre Speizer.
Bitcoin stabilised in Asian and European trading and was last up 4.1% at $32,941. Bitcoin and other cryptocurrencies had come in for heavy selling on Monday, hurt by a tightening crackdown on trading and mining in China.
Benchmark 10-year US Treasury notes were yielding 1.50%, having sunk to about 1.36% at one point on Monday
“To be fair the real action continues to be in the 30–year part of the curve,” said Deutsche Bank’s Jim Reid. That opened the week in Asia at 2.01%, rallied to 1.925% but then reversed course again and flirted with 2.12% in Europe.
Spot gold added 0.3% to $1,787.61/oz and copper steadied at $9,192/t having dropped nearly 15% over the past six weeks. It is still up more than double its level during the first peak of Covid-19 concern early in 2020.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.