Stocks Up, Futures Steady in Europe; Sovereign Yields Higher

© Reuters. Stocks Up, Futures Steady; Sovereign Yields Higher: Markets Wrap

(Bloomberg) -- Stocks and sovereign bond yields climbed Friday on optimism about the economic outlook, though uncertainty lingers about potential risks from the debt crisis at China Evergrande Group.

MSCI Inc.’s Asia-Pacific index rose for a second day, led by Japan. Shares were muted in Hong Kong and China, where Evergrande has yet to make a statement on a dollar-bond interest payment that was due Thursday. Global market unease about contagion from Evergrande has ebbed, but it remains unclear if Beijing will manage the fallout from any potential default at the word’s most-indebted developer.

U.S and European futures were little changed after the S&P 500’s biggest two-day gain since July. The Wall Street advance was led by economically-sensitive sectors like energy and financials, as investors embraced the view that a looming reduction in Federal Reserve stimulus shows confidence in the recovery from the pandemic. The dollar ticked up. Oil was above $73 a barrel.

The prospect of tighter monetary policy spurred a global selloff in bonds. Long-term Treasury yields have surged the most in 18 months as traders brought forward expectations for the first Fed rate hike to the end of 2022. Yields jumped on sovereign debt in Australia and New Zealand.

Equity investors are taking heart from predictions that the delta virus strain and pandemic-related supply-chain snarls will deal only a temporary setback to economic reopening. Central banks have also pledged to withdraw stimulus gradually. But a continuing rise in long-term borrowing costs could be a risk to the upbeat picture if it ends up denting confidence in recovery prospects.

Clarity from the Fed has allowed risk assets to flourish, Elaine Stokes, a portfolio manager at Loomis Sayles & Co., told Bloomberg Television, adding that “what they did is tell us that they feel really good about the economy.”

While the bond selloff has vindicated Treasury bears who argue yields are too low to reflect fundamentals, others see limits to how high they can go.

“We’d expected bond yields to go higher, given the macro situation where growth is still very strong,” Sylvia Sheng, global multi-asset strategist with JPMorgan (NYSE:JPM) Asset Management, said on Bloomberg Television. “But we do stress that is a modest view, because we think that upside to yields is still limited from here given that central banks including the Fed are still buying bonds.”

Elsewhere, gold rose and Bitcoin traded near $44,000.

Stocks

• S&P 500 futures were steady as of 7:10 a.m. in London. The S&P 500 rose 1.2%
• Nasdaq 100 futures slipped 0.1%. The Nasdaq 100 rose 0.9%
• Japan’s Topix index climbed 2.3%
• Australia’s S&P/ASX 200 index slipped 0.4%
• South Korea’s Kospi shed 0.1%
• China’s Shanghai Composite Index dropped 0.4%
• Hong Kong’s Hang Seng index was steady
• {{8867|Euro Stoxx 50 futures}} were flat

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was at $1.1738
• The Japanese yen was at 110.52 per dollar
• The offshore yuan was at 6.4604 per dollar

Bonds

• The yield on 10-year Treasuries was at 1.43%
• Australia’s 10-year bond yield increased 15 basis points to 1.41%

Commodities

• West Texas Intermediate crude was at $73.38 a barrel, up 0.1%
• Gold was at $1,755.83 an ounce, up 0.8%