Shares and commodities keep climbing, so do bond yields

By Marc Jones

LONDON (Reuters) – World stocks headed back towards record highs with a third day of gains and the dollar dropped to a three-year low on Thursday, after top Federal Reserve and European Central Bank officials took aim at rising bond market yields.

There was a lot to keep tabs on. A renewed retail frenzy re-ignited the likes of GameStop, bets on $70 a barrel oil and a decade high in copper prices drove a commodity currency rally [/FRX] and bond yields were still rising too. [GVD/EUR]

A near 1.9% jump in oil and gas shares ensured European markets followed Asia’s overnight gains [.T][.SS]. MSCI’s main world index, which spans 50 countries, was up 0.5%.

“There are two clear stories now” said CMC Markets senior analyst Michael Hewson. “You have the concerns about rising yields and they are continuing to move higher today, and then you have got an economic recovery story, which is helping lift the more moderately-valued parts of the market.”

Federal Reserve Chair Jerome Powell said on Wednesday that U.S. rates could remain low for years, while ECB-POLICY-KAZIMIR-00b06d9b-4b99-46ce-a2aa-458d8eb2d993>ECB-POLICY-CENTENO-a52f21b9-8975-4dc5-9a21-8c5e8267aa43>ECB-POLICY-KAZIMIR-00b06d9b-4b99-46ce-a2aa-458d8eb2d993>ECB board member Isabel Schnabel was out early on Thursday saying it would fight any big increases in inflation-adjusted market rates.

“A too-abrupt increase in real interest rates on the back of improving global growth prospects could jeopardise the economic recovery,” she said. “Therefore, we are monitoring financial market developments closely.”

But bond markets are still not playing ball. Ten-year German Bund yields climbed 3 basis points in early trading. U.S. 10-year Treasury yields were near one-year highs at 1.42% and on course for the biggest monthly rise since Donald Trump’s 2016 U.S. election victory jolted markets.

In the FX markets, the safe-haven U.S. dollar slumped near three-year lows as the Fed’s stance, ongoing progress with COVID vaccination programmes and commodity market uplift boosted riskier currencies.

The Australian and Canadian dollars both hit three-year highs of $0.7978 and C$1.2503 per U.S. dollar respectively.

The euro touched a one-month high of $1.2183. The safe-haven yen and Swiss franc both weakened.

“It is pretty clear that there is a pretty strong concentration in the commodity currencies,” said Saxo Bank’s John Hardy. “Even with emerging markets you are seeing it to a degree,” he added, pointing to how big energy importers like Turkey’s lira had faded.

MARATHON NOT A SPRINT

Crude oil climbed to 13-month highs after U.S. government data on Wednesday showed a drop in crude output as a deep freeze in Texas disrupted production last week. [O/R]

Copper prices steadied near $9,500 a tonne in London. It’s now at its highest level in almost a decade and could log its biggest monthly gains in 15 years this month.

In a possible sign of a renewed retail-driven frenzy in equity markets, GameStop’s Frankfurt-listed shares trebled as they opened on Thursday, overshooting the videogame retailer’s 100% surge on Wall Street overnight.

Other so-called “stonks” – an intentional misspelling of “stocks” – favoured by retail traders on sites such as Reddit’s WallStreetBets had also leapt again, although explanations for the moves were tenuous.

Some online stocks watchers had even pointed to a picture posted by an activist GameStop investor of a McDonald’s ice cream cone with a frog emoji as a cryptic sign.

“It’s a marathon, not a sprint. Whatever happens resist the urge to sell. The longer we hold the higher it goes,” said @catchme1fyoucan, one user in Italy of the retail trading platform eToro, in a discussion on GameStop.

(Reporting by Marc Jones, editing by Larry King)