World shares ease as yields and oil ring inflation alarm

World shares dipped on Monday as the U.S. Senate’s passage of a $1.9 trillion stimulus bill put fresh pressure on Treasuries and tech stocks with lofty valuations, raising inflation jitters. These concerns overshadowed the prospect that stimulus would give another boost to the world’s No.1 economy, likely helping global growth rebound faster from the COVID-19 downturn.

Analysts expect a sharp acceleration in inflation, stoked in part by the latest spike in oil prices, which on Monday climbed above $70 for the first time since the pandemic began. The MSCI world equity index fell 0.1% by 0828 GMT, as gains in European cyclical and travel stocks were offset by losses in Asia. Chinese stocks posted their biggest decline in seven months, down 3.5%, on concerns that Chinese officials could tighten policy to rein in lofty valuations.

Nasdaq futures fell 2% in early European trade, reversing early gains, while S&P 500 futures fell 1% as investors looked past the benefits of the fiscal package. According to JPMorgan, every $1 trillion of fiscal stimulus adds around $4-$5 to companies’ earnings per share, implying 6-7% upside for the remainder of the year. Equity investors had taken heart on Friday from U.S. data showing nonfarm payrolls surged by 379,000 jobs last month, while the jobless rate dipped to 6.2% in a positive sign for incomes, spending and corporate earnings.

U.S. Treasury Secretary Janet Yellen tried to counter inflation concerns by noting the true unemployment rate was nearer 10% and there was still plenty of slack in the labour market. Yet yields on U.S. 10-year Treasuries still hit a one-year high of 1.626% in the wake of the data, and stood at 1.594% on Monday. U.S. yields increased a hefty 16 basis points for the week, while German yields actually dipped 4 basis points. The dollar index shot up to levels not seen since late November and was last at 92.06, well above its February trough of 89.677.

The U.S. currency also gained on the low-yielding yen, reaching a nine-month top of 108.63, and was last changing hands at 108.4.

World shares ease as yields and oil ring inflation alarm, Reuters, Mar 8