Global Markets: Global shares turn higher, stemming rout; bond yields rise

Resona Holdings

14/03/2023 15:12

(Adds byline, NEW YORK to dateline, bullets; recasts throughout
with change in equity markets' direction, fresh prices, comment)

        * 
      Global shares on track to rise for first time in six
sessions 
    

        * 
      Euro zone yields jump on shifting rate outlook
    

        * 
      Gold dips as safe-haven buying dries up
    

  
    By Chris Prentice and Amanda Cooper
       NEW YORK/LONDON, March 14 (Reuters) - Global shares
turned higher on Tuesday, stemming a five-session rout after key
U.S. data met expectations and bolstered bets of a smaller
interest rate hike by the Federal Reserve at its next meeting.
    Euro zone yields jumped amid a shifting rate outlook, with
markets betting central banks would soften their policy stance
as they assess financial stability risks. Gold prices dipped.
    Data showed the U.S. Consumer Price Index (CPI) rose 0.4% in
February versus 0.5% a month earlier. On a yearly basis, it rose
6.0% last month, compared with 6.4% in the previous month.
    U.S. Treasury yields moderately extended gains following the
inflation data, indicating some expectation the Fed could
continue to raise rates but at a gradual pace.  US/ 
    The MSCI All-World index  .MIWD00000PUS  reversed earlier
losses, and was up 1% by 10:48 a.m. EDT (1448 GMT), on track to
gain for the first in six sessions. 
    The Dow Jones Industrial Average  .DJI  rose 419.87 points,
or 1.32%, to 32,239.01, the  .SPX  gained 71.32 points, or
1.85%, to 3,927.08 and the  .IXIC  gained 240.82 points, or
2.12%, to 11,425.84.
    European shares  .STOXX  snapped a two-day plunge, jumping
1.57%.
    As recently as a week ago, investors were just recovering
from a reality-check that prompted many to assume rates around
the world were likely to head much higher and stay there for
longer than previously expected.
    In under a week, three U.S. banks have collapsed. It has
been the failure of technology-sector lender Silicon Valley Bank
(SVB) that has rattled investor confidence and triggered a rush
into safe-haven assets like bonds and gold.
    Moody’s Investors Service on Tuesday said it had changed its
outlook on the U.S. banking system to negative to "reflect the
rapid deterioration in the operating environment".
    Banking stocks around the world have shed hundreds of
billions of dollars in value in a matter of days, while the
government bond market has seen one of its biggest rallies in
decades.
    The yield on benchmark 10-year Treasury notes  US10YT=RR  
rose to 3.6663% compared with its U.S. close of 3.515% on
Monday. 
    The two-year yield  US2YT=RR , which rises with traders'
expectations of higher Fed fund rates, touched 4.3571% compared
with a U.S. close of 4.03%, but was still at levels not seen for
six months before Monday's largest one-day drop since 1987.
    "The Federal Reserve is going to have to pick its poison
-tolerate some inflation for a bit to see if its current series
of rate hikes takes hold and pause or keep hiking and deal with
the financial instability caused by their own policy decisions,"
Jamie Cox, Managing Partner for Harris Financial Group in
Richmond, Virginia, said following the CPI data.
    Many have drawn parallels to the 2008 financial crisis, when
indicators of financial market stress shot up and equities
crumbled. But Societe Generale chief currency strategist Kit
Juckes said the current situation was far more like the U.S.
savings and loans crisis of the 1980s, in which hundreds of
smaller banks folded when the Federal Reserve jacked up interest
rates to control inflation.
    SVB, which was the 16th biggest U.S. bank at the end of last
year, is the largest lender to fail since 2008. Specifics of the
tech-focused bank's abrupt collapse are still something of a
jumble, but the sharp rise in Fed rates in the last year, which
tightened financial conditions in the startup space in which it
was a notable player, seemed front and centre.
    "I don't think this is a systemic global banking issue. If
it's an issue, it's an issue of a smaller but less-regulated
bank that has been growing very fast on the back of being less
regulated in a stable environment that has turned nasty," Juckes
said.
    Overnight the VIX  .VIX  volatility index, nicknamed Wall
Street's "fear gauge", neared six-month highs and other
indicators of market stress showed early signs of strain. An
index of bond market volatility - the ICE BofA MOVE index
 .MOVE  - had hit a 14-year high by Monday's close.
    Yields on government bonds from the U.S. to Germany and
Japan have dived in the last week. German two-year yields, which
fell by the most at least since reunification in 1990, while
Japanese yields have fallen by the most in decades.
    Elsewhere, the U.S. dollar benchmark gained after seeing a
large decline over the last week amid the dramatic re-pricing of
U.S. rate expectations.
    Gold's safe-haven rally dried up on Tuesday in the face of
higher Treasury yields. Spot gold  XAU=  was down 0.37%. U.S.
gold futures  GCv1  also dropped.
    Oil prices fell more than $2 a barrel. The global benchmark
 LCOc1  last down about 1%.

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World FX rates YTD    http://tmsnrt.rs/2egbfVh
Global asset performance    http://tmsnrt.rs/2yaDPgn
Asian stock markets    https://tmsnrt.rs/2zpUAr4
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 (Reporting by Tom Westbrook  Editing by Sonali Paul and Mark
Potter)
 ((tom.westbrook@tr.com; +65 6973 8284;))
 
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