Global equities set another record high as rally resumes

The equity rally resumed on Monday, pushing global indices to further all-time highs, as the Biden administration kept the pressure on Congress over its $1.9 trillion (€1.6 trillion) stimulus plan.

Over the weekend, US Treasury secretary Janet Yellen urged lawmakers to pass the fiscal stimulus package. Responding to claims that its scale could fuel inflation, she argued that the biggest economic risk was not doing enough to help small businesses and the unemployed.

Package

MSCI’s index of developed and emerging market stocks marked another record high, rising 0.25 per cent.

The size of the proposed package had been criticised by Lawrence Summers, who served as Treasury secretary under President Clinton and was President Obama's top economic adviser. Summers warned that President Joe Biden's plan might trigger "inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability".

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For stock investors, the prospect of increased stimulus continues to outweigh the economic damage caused by the pandemic.

"Last week we had a pretty bad jobs report in the US, but it's one of those cases of 'bad news is good news', at least as far as the markets is concerned, as it increases the chance of a large package," said Hani Redha, portfolio manager at PineBridge Investments. "That will have a spillover effect in European markets."

In Europe, the region-wide Stoxx 600 index rose 0.4 per cent. London’s FTSE 100 benchmark gained 0.8 per cent. Futures tracking the blue-chip S&P 500 rose 0.2 per cent, implying a positive open on Wall Street later.

The inflation talk encouraged a further sell-off in US Treasuries. As investors moved out of the debt, the yield on the 10-year bond rose 0.02 percentage points to 1.2 per cent.

The 30-year yield rose 0.02 percentage points to about 2 per cent for the first time since the coronavirus crisis began.

Boost

In Italy, Mario Draghi’s hopes of forming a government received a boost over the weekend after the anti-establishment Five Star Movement and the Eurosceptic League offered conditional backing. “It looks like Draghi has the support to form a government, and that will be welcomed by the markets,” said Redha.

Vaccine hopes were dented by news that South Africa had halted the rollout of the Oxford/AstraZeneca vaccine, after early evidence showed it had failed to protect against mild and moderate forms of the Covid-19 variant first detected in the country.

Oil markets continued their march higher, regardless. Brent crude jumped 0.7 per cent to more than $60 a barrel, taking the international marker to its highest level since January last year.

In Asia, China’s CSI 300 index closed up 1.5 per cent, and Japan’s Topix rose 1.8 per cent to reach its highest level since 1991. – Copyright The Financial Times Limited 2021