Stocks try to recover from bond whiplash, dollar gains

By Herbert Lash

NEW YORK (Reuters) – Global equity markets swooned on Friday, even as the Nasdaq and S&P 500 tried to recover and the bond rout eased a bit, but fears of rising inflation still weighed on sentiment as data showed a strong rebound in U.S. consumer spending.

Shares of Amazon.com Inc, Microsoft Corp and Alphabet Inc edged up after bearing the brunt of this week’s downdraft, while financial and energy shares fell.

The S&P 500 gained 0.80% and the Nasdaq Composite added 1.87%. But the Dow Jones Industrial Average fell 0.3%.

U.S. consumer spending rose by the most in seven months in January as low-income households got more pandemic relief money and new COVID-19 infections dropped, setting the U.S. economy up for faster growth ahead.

The benchmark 10-year Treasury note on Thursday touched 1.614%, the highest in a year, rocking world markets. The note’s yield is up more than 50 basis points year to date and is now close to the dividend return of S&P 500 stocks.

The 10-year note fell 1.7 basis points to 1.4977%.

The amount of money swirling through markets and U.S. stocks at close to all-time highs has caused investor angst, said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago.

“Many people are taking some profits and not necessarily reinvesting that money quite yet,” Kinahan said, but the tug of war isn’t over year.

“The U.S. equity market is still the best game in terms of safety versus opportunity. But there is a shift going on.”

The scale of the recent Treasury sell-off prompted Australia’s central bank to launch a surprise bond buying operation to try to staunch the bleeding.

MSCI’s benchmark for global equity markets slid 0.83% to 661.49.

In Europe, the broad FTSEurofirst 300 index closed down 1.64% at 1,559.48. Technology stocks lost the most as they continued to retreat from 20-year highs.

The dollar rose against most major currencies as U.S. government bond yields held near one-year highs and riskier currencies such as the Aussie dollar weakened.

The dollar index rose 0.578%, with the euro down 0.78% to $1.2081. The Japanese yen weakened 0.42% versus the greenback at 106.66 per dollar.

Gold fell more than 2% to an eight-month low, the stronger dollar and rising Treasury yields hammered bullion and put it on track for its worst month since November 2016.

Benchmark German government bond yields fell for the first time in three sessions but were still headed for their biggest monthly jump in three years after rising inflation expectations triggered a sell-off.

The 10-year German bund note fell less than 1 basis points to -0.263%.

European Central Bank executive board member Isabel Schnabel reiterated on Friday that changes in nominal interest rates had to be monitored closely.

Copper recoiled after touching successive multi-year peaks in six consecutive sessions, falling more than 3% as risk-off sentiment hit wider financial markets after a spike in bond yields.

Three-month copper on the London Metal Exchange (LME) slumped to $9,112 a tonne.

MSCI’s Emerging Markets equity index suffered its biggest daily drop since the markets swooned in March. MSCI’s emerging markets index fell 3.06%.

The surge in Treasury yields caused ructions in emerging markets, which feared the better returns on offer in the United States might attract funds away.

Currencies favoured for leveraged carry trades all suffered, including the Brazil real and Turkish lira, which slid for a fifth straight day, erasing all the year’s gains.

Asia earlier saw the heaviest selling, with MSCI’s broadest index of Asia-Pacific shares outside Japan sliding more than 3% to a one-month low, its steepest one-day percentage loss since the market rout in late March.

Oil fell. Brent crude futures fell $0.78 to $66.1 a barrel. U.S. crude futures slid $1.24 to $62.29 a barrel.

(Reporting by Herbert Lash, additional reporting by Tom Arnold in London, Wayne Cole and Swati Pandey in Sydney; editing by Larry King and Nick Zieminski)