Global stock markets fell on Monday as expectations of faster growth and quickening inflation battered bonds, boosted commodities and led to a further rotation out of the big tech names that have driven the equity rally during the pandemic.
Gold rose more than 1% and copper prices shot above $9,000 a tonne for the first time since 2011 on the prospect for inflation and growth, while the dollar slumped to multi-year lows against the British pound and the Australian dollar.
Oil prices rose on a tight global supply outlook after U.S. production was hammered by frigid weather and an approaching meeting of top crude producers is expected to keep output largely in check.
Investors, who have been buying economically sensitive cyclical stocks and selling growth stocks, are preparing for a potential spike in inflation with the U.S. Congress poised to pass a $1.9 trillion pandemic-related economic stimulus bill.
“What we’re seeing are expectations really growing that we’re going to have a return (to) normalcy a lot sooner, and that’s driving the cyclical rotation,” said Edward Moya, senior market analyst at OANDA in New York.
High-growth stocks, including Apple Inc, Microsoft Corp, Tesla Inc and Amazon.com, pulled the Nasdaq down and weighed on the S&P 500.
MSCI’s all-country world index, which looks at stock market performance across 49 countries, fell 0.85%, also pulled down by the big U.S. tech names.
European shares trimmed early losses as comments by European Central Bank chief Christine Lagarde knocked bond yields lower, while rising inflation expectations and profit-taking in technology stocks dragged the benchmark index lower.
In Europe, the broad STOXX 600 index closed down 0.44%, falling to its lowest in 10 days. Germany’s DAX fell 0.31%, France’s CAC 40 slid 0.11% and Britain’s FTSE 100 lost 0.18%.
On Wall Street, the Dow Jones Industrial Average rose 0.09%, eking a small gain. The S&P 500 lost 0.77% and the Nasdaq Composite dropped 2.46%.
“Lagarde’s comments, talking about longer-term nominal bond yields, poured some cold water on these government bond yields that are getting out of control,” Moya said.
Bond yields have risen sharply this month as prospects for more U.S. fiscal stimulus have boosted hopes for a faster economic recovery globally, which would also lift inflation.
U.S. economic growth as measured by gross domestic product is expected to run more vigorously than at any time in the past 35 years and business investment is expected to run twice as quickly as the broad economy, according to Credit Suisse.
Bank of America Merrill Lynch raised its U.S. GDP forecast for 2021 to 6.5% and its 2022 expectation to 5% on Monday, citing a larger stimulus package, better news surrounding the COVID-19 pandemic and encouraging economic data.
Federal Reserve Chair Jerome Powell delivers his semi-annual testimony before Congress this week and is likely to reiterate a commitment to keeping policy super easy for as long as needed to drive inflation higher.
The 10-year U.S. Treasury note’s yield rose 2 basis points to 1.3636%. The yield on the benchmark U.S. Treasury note earlier jumped to 1.394%, the highest since February 2020.
Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.18%, after slipping from a record top last week as the jump in U.S. bond yields unsettled investors.
Japan’s Nikkei recouped 0.8% but Chinese blue chips lost 1.4%.
Oil prices jumped, with international benchmark Brent gaining 22% for the year to date. [O/R]
Brent crude futures rose $2.33 to settle at $65.24 a barrel, while U.S. crude futures settled up $2.25 at $61.49 a barrel.
Rising oil and metals prices have been a boon for commodity-linked currencies, with the Canadian, Australian and New Zealand dollars all higher for the year.
Sterling hit a three-year top of $1.4068, aided by one of the fastest vaccine rollouts in the world.
The dollar index fell 0.185%, with the euro up 0.27% to $1.215. The Japanese yen strengthened 0.33% versus the greenback at 105.08 per dollar.
U.S. gold futures settled up 1.7% at $1,808.40 an ounce.
Bitcoin fell 6.1% at $54,003.88 from a record high of $58,354.