European stocks and bond yields climb after day of crypto turbulence
European stocks and bond yields climbed on Thursday after a bruising day for global markets as cryptocurrencies whipsawed and the US Federal Reserve’s latest minutes hinted at tighter monetary policy to come as the pandemic recovery gathered pace.
In Europe the continent-wide Stoxx 600 index rose 0.6 per cent and the UK’s FTSE 100 gained 0.4 per cent. Meanwhile, benchmark German 10-year Bunds and UK gilt yields both rose 0.01 percentage point as tightening fears lingered.
In currencies, the pound rose 0.1 per cent against the dollar to $1.41, while the euro increased 0.2 per cent to fetch $1.22. The US dollar, as measured against a basket of basket of its peers, dropped 0.2 per cent.
The moves suggested a return to calm after a volatile day for equities on Wednesday, which saw the S&P 500 index close 0.3 per cent down after falling as much as 3 per cent.
“Global risk sentiment appears to be stabilising . . . after yesterday’s crypto contagion fears drove a broad risk-off day across European and US markets, which were already on shaky ground ahead of the [Fed] minutes,” analysts at JPMorgan wrote.
Cryptocurrencies continued to face considerable volatility, after Chinese regulators signalled a potential crackdown on Wednesday ahead of launching their own digital currency. Bitcoin, which had soared past $60,000 last month, fell as much as 30 per cent to a low of $30,101 on Wednesday, although it clawed back most of its losses.
“Stocks and cryptocurrencies have been showing signs of froth over the past few months and were due for a pullback,” said Richard Saperstein, chief investment officer at Treasury Partners.
Futures markets signalled a mixed opening for Wall Street on Thursday, with the S&P 500 opening flat and the technology-heavy Nasdaq rising 0.3 per cent.
Wednesday’s minutes from the Federal Reserve indicated that some policymakers thought the conversations about scaling back the central bank’s $120bn in monthly bond purchases would need to begin as the pandemic recovery heated up.
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But the exact impact of that more hawkish tone is difficult to predict, said Roger Lee, head of UK equity strategy at Investec. “It’s sort of a transition of the seasons . . . Clearly, there’s going to be a tighter policy outlook, but how that plays out in equities is quite difficult to predict.”
While index levels have not moved much, sectoral movement had been profound in the past six weeks, he said. The technology had been among the victims, as inflationary pressure in the US mounted.
Lee added that tapering was unlikely to be immediate, referring to similar measures taken in 2013: “They first started talking about tapering in March; they didn’t start doing anything until December.”
Brent crude dropped 0.6 per cent to $66.28 a barrel, having reached $70 on Tuesday, only the third time since the start of the pandemic.
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