Stocks rise as U.S. retail trading frenzy comes under scrutiny

By Danilo Masoni

MILAN (Reuters) – World shares rose on Wednesday as volatility caused by a retail trading frenzy on Wall Street subsided on expectations of tougher regulation, while optimism about U.S. fiscal stimulus also supported sentiment.

The MSCI world equity index was up 0.3% by 0852 GMT, inching closer to its record peak following gains in Asia overnight and a positive open in Europe.

World shares recovered from wild swings last week when a Reddit-driven trading fever boosted heavily shorted stocks like GameStop, forcing hedge funds to reduce their equity books.

Investors were bracing for tougher U.S. markets regulation after Treasury Secretary Janet Yellen asked to discuss whether trade had been consistent with fair and efficient markets. Officials were set to meet as soon as Thursday

“Regulators have acknowledged the tumult,” noted Deutsche Bank strategists led by Jim Reid in a note.

Gamestop’s Frankfurt-listed shares fell 45% in morning trade in Europe.

Markets also cheered to renewed hopes for U.S. President Joe Biden’s proposed $1.9 trillion COVID-19 aid bill after the Senate took steps to allow Democrats to pass Biden’s package without Republican support.

Well-received earnings updates from tech giants Alphabet and Amazon.com also bolstered sentiment.

Nasdaq and S&P 500 futures were up 0.8 and 0.4% respectively.

On bond markets, Italy’s borrowing costs fell sharply on expectations former European Central Bank chief Mario Draghi could become the country’s next prime minister, ending a political crisis.

Italy’s 10-year bond yield fell as much as 8 basis points to around 0.58%, its lowest in almost two weeks. It was set for its biggest one-day fall since mid-January.

The gap between Italian and German 10-year bond yields narrowed to 105.9 bps from 113 bps late on Tuesday.

“While significant policy initiatives seem unlikely, markets will probably view Draghi as a positive appointment,” said Paul Donovan, chief economist at UBS Global Wealth Management.

Elsewhere, spot silver, which briefly surged on Monday as small traders bought up the metal, rose 0.7% to $26.8 an ounce. That was a minor rebound from an 8% tumble on Tuesday, and analysts say the retail trader-driven rally to a near eight-year peak in the previous session has faded.

Spot gold fell 0.1% to $1,835.5 per ounce.

Oil prices continued their upswing, supported by an unexpected draw in U.S. crude stockpiles and a producer estimate of a global oil market deficit this year.

Brent crude futures hit an 11-month high and were last up 0.7% at $57.86 a barrel, while U.S. crude futures climbed 0.5% to $55.06 a barrel, just shy of a one-year high.

In foreign exchange markets, the dollar traded near a two-month high against the euro as investors bet that the U.S. economy will recover from the coronavirus shock faster than the euro zone.

(Reporting by Danilo Masoni; additional reporting by Stanley White and Imani Moise; Editing by Jacqueline Wong)