Global stocks struggled on Thursday with China returning from the Lunar New Year break, as optimism surrounding the global economy is tempered by a rise in bond yields that makes equities look less attractive by comparison.
Copper futures rallied amid the expectations that the rollout of COVID-19 vaccines and further fiscal stimulus in the U.S. will reflate the global economy. Unexpectedly strong U.S. retail sales further stoked that view. The copper contract on the London Metal Exchange rose to its highest level since April 2012.
The bond market selloff continues to be the focus of markets. The yield on the benchmark 10-year Treasury has jumped 38 basis points this year. Yields move in the opposite direction to prices.
“The recent rally seen in yields reflects mainly two things. One is we are finally beating the virus and hence we are headed for strong economic activity. The second part which worries many investors is that inflation may return at a faster pace than previously anticipated,” said
chief market strategist at FXTM.
“A steady slow increase may not necessarily disrupt the uptrend in equities but will likely force rotation from highly priced stocks, typically in the tech sector, to more reasonably priced cyclical ones. But another sharp spike in bond yields, in which the 10-year approaches 1.75% in a short time frame could pose a big risk to the bullish trend in the overall equity market,” he said.
U.S. stock futures were weaker heading into Thursday’s session, which will feature retailer
earnings, a busy slate of economic releases, and a congressional hearing on videogames retailer
Cloud communications platform company
may advance after reporting stronger-than-forecast earnings.