US stocks rise and government bonds fall as Biden meets Western allies
US stocks rose, gas prices in Europe rose and government bonds remained under pressure from inflation fears as Joe Biden met with NATO leaders to discuss their response to the invasion Russian from Ukraine.
Wall Street’s S&P 500 stock index gained 0.5%, while the tech-focused Nasdaq Composite gained 0.3% as traders pulled money out of a struggling global bond market. its deepest slowdown since at least 1990.
The S&P climbed nearly 6% above its February 23 closing level, the day before Vladimir Putin launched Russia’s invasion of his neighbor.
Equity markets were showing “a remarkable level of complacency,” said Olivier Marciot, chief investment officer of Unigestion, saying that “it is difficult to see how corporate earnings can be sustained alongside higher inflation and weaker economic growth”.
“There is a clear divergence between the bond managers and the stock managers,” he said. “I think the bond guys are right.”
Europe’s regional Stoxx 600 index, which is more than 7% lower for the year and traded flat on Thursday, erased all of its losses since Moscow’s incursion began.
At the same time, government bond prices in the United States, the euro zone and the United Kingdom continued to fall, on concerns about persistently high global inflation – fueled by possible new sanctions against the Russian energy – reduced the attractiveness of fixed income securities.
The yield on the 10-year US Treasury, which underpins global funding costs and moves inversely to its price, rose 0.04 percentage points to 2.37%, close to its highest. high level since May 2019.
US President Biden met with NATO heads of state on Thursday and reached an agreement to step up preparations for potential chemical and nuclear weapons threats, as investors awaited a response from European leaders on the lockdowns potential for Russian fossil fuel imports at a peak starting later in the day.
German Chancellor Olaf Scholz has warned that banning Russian energy “would be tantamount to plunging our country and all of Europe into a recession”. Germany imports a third of its oil from Russia and more than half of its gas and coal. Consumer price inflation in the euro zone hit a record 5.8% in February, with economists expecting it to continue to rise.
For financial markets, the best outcome of the EU summit would be “a fiscal response at the highest European level”, to finance aid to businesses and households on higher energy costs, said Monica Defend, director of the Amundi Institute.
Brent crude hovered just below $121 a barrel, now up about a quarter since Feb. 23. The benchmark could top $200 this year, traders warned at a Financial Times event in Switzerland.
Futures linked to wholesale gas prices in Europe rose 7% to €121 per megawatt-hour, after topping €130 on Wednesday after Russian President Putin said ‘unfriendly’ nations should pay for gas Russian in rubles, casting doubt on existing supply agreements. Prices are almost seven times higher than a year ago.
The yield on the 10-year German Bund rose 0.04% to 0.52%, near its highest level since October 2018, as the price of the benchmark eurozone debt security fell. The yield on British 10-year gilts rose 0.05 percentage point to 1.68%, following a short-lived price gain on Wednesday as the UK scaled back its debt issuance plans.
In Asia, Hong Kong’s Hang Seng stock index fell 0.9%. The Japanese yen, which is trading at its lowest level in six years against the US currency, weakened a further 0.4% to 121.6 yen per dollar.