U.S. stock prices hit new record highs, bond yields flirted

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U.S. stock prices hit new record highs, bond yields flirted

In many years still in place, Fed stimulus seen for some time.

On Wednesday, the global stock prices hit new record highs while the yields of U.S. bonds flirted with their lowest levels in a month, as investors bet Fed is some way behind from less economic stimulus.

MSCI's all-country world index last stood at 716.55, after hitting an intraday high of 718.19 on Tuesday, led by the gains in Europe.

The European stocks are expected to open largely flat, with the Euro Stoxx futures down 0.1% and the UK FTSE Futures up 0.1% in early trade.

In Japan, the broadest index of Asia-Pacific shares ticked in Asia 0.20% and the average Nikkei Index in Japan dropped 0.28%.

The S&P 500 was still on Wall Street on Tuesday, and near the high of its record high.

On the other hand, the 10-year debt yield, 0.09% down from a month low of 1.776%, fell to 1.513% and down a quarter of a percentage point from a 14 month peak of 1.776% in March. It remained almost flat at 1.533% on Wednesday in the first half of the year, and was seen as flat on Tuesday.

As the recovery in the job market is contained, any discussion about tapering at the Fed will not gain momentum, even if it begins soon," said Naokazu Koshimizu, Senior Rates Strategy Consultant at Nomura Securities.

So those who have benefited from steepening of the yield curve are raising their positions while some investors are now investing to earn carry.

The payrolls reports from the U.S. on Friday proved the hiring did not grow as fast as economists had expected despite growing signs of a labour shortage.

Many analysts think that more evidence of a strong job growth would be required for the Federal Reserve to increase its discussion on tapering.

The American central bank has said that price increases in inflation this quarter would be nebulous and would not threaten price stability, one of its important mandates.

On Thursday, the U.S. Consumer Price data is expected to show the core inflation rate rose to 4.7% and the overall annual inflation to 3.4%.

Although these readings will be well above the Fed inflation target of 2%, many economists expect the rate to ease in the future months, allowing the Fed to wait before taking any aggressive measures.

Yet some investors remained reluctant to believe that a tight labour market could lead to unexpectedly strong inflationary pressures.

The US labor market looks really tight. At the moment, workers are not coming back for various reasons. They may eventually increase they will return, and as the company’s payrolls recover, they will have to raise salaries, says Yoshinori Shigemi, macro-strategist at Fidelity International.

Inflation data from China showed its producer price index jumped 9.0% from a year earlier, the highest in the last 12 years, on surging commodity prices.

However, the increase in consumer prices is softer than expected, helping to reduce concerns. While China's central bank is slowly increasing back from pandemic-driven stimulus, top leaders have vowed to avoid any sharp policy changes and keep borrowing costs low.

The Chinese yuan, whose rally to a three-year high last week was propelled by speculation that Beijing is trying to trim inflationary pressure, ticked up slightly to 6.3943 per dollar.

While Chinese authorities have denied market speculation about the yuan, the Yuan did in the past rise when import prices rose sharply, said Naoto Saito, chief researcher at the Daiwa Institute of Research.

Other currencies were less volatile as the euro hardly changed at $1.2178 and the dollar ticked at 109.47 yen.

Investors have scaled back expectations that the European Central Bank may announce a plan to reduce its asset purchases when it weighs policy on Thursday.

How tight did the oil prices become after U.S. Secretary of State Antony Blinken said that even if the United States were to reach a nuclear deal with Iran, hundreds of sanctions against Tehran would still be in place.

U.S. crude prices closed to $70 per barrel on Tuesday for the last time since Oct 2018 and closed at $70.48, up 0.6%.

Brent futures have rallied 0.6% to $72.66, staying near their highest level since early 2020.

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