Traders carry out routine work on the floor of the New York Stock Exchange. Reuters
World shares picked up Wednesday on positive economic data in Europe and as investors looked to a second day of testimony by Federal Reserve Chair Jerome Powell for his outlook on economic stimulus.
Investors have this week focused on a rise in bond yields and how it affects stock valuations, analysts say. The large amount of stimulus being pumped into economies has been a factor in pushing up bond yields, reviving worries about inflation that have been nearly nonexistent for over a decade.
Market sentiment was improved somewhat by a report showing that Germany’s economy, Europe’s biggest, grew faster than previously thought in the fourth quarter. It expanded 0.3% from the previous quarter, up from the earlier estimate of 0.1%.
Germany’s DAX rose 0.8% to 13,977 while the CAC 40 in France was up 0.2% at 5,789. Britain’s FTSE 100 rose 0.3% to 6,643, with travel stocks rising on hopes for a gradual reopening of the hospitality sector and tourism this summer.
U.S. futures also were higher, with contracts for the S&P 500 up 0.3% and those for the Dow industrials up 0.2%.
Federal Reserve Chair Jerome Powell told Congress Tuesday the Fed didn’t see a need to alter its policy of keeping interest rates ultra-low, noting that the economic recovery “remains uneven and far from complete.” He will hold a second day of testimony on Wednesday.
“Rising borrowing costs remain the prevalent issue on hand though Fed Powell’s dovish remarks had helped to arrest the fall for US equities on Tuesday,” Jingyi Pan of IG said in a commentary.
Hong Kong led a decline in Asia earlier, losing 3% to 29,718.24 after the government announced it was raising the stamp tax on stock transactions to 0.13% from 0.1%. The increased revenue would help boost tax coffers as the government spends more to pull the economy out of its pandemic doldrums.
Tokyo’s Nikkei 225 shed 1.6% to 29,671.70. In Seoul, the Kospi skidded 2.5% to 2,994.98. Australia’s S&P/ASX 200 lost 0.9% to 6,777.80. The Shanghai Composite index gave up 2% to 3,564.08.
India’s Sensex bucked the regional trend, gaining 0.5% to 49,997.82.
Hong Kong’s government also announced pandemic relief measures worth $15.4 billion to help the territory recovery from the blow to its economy, which contracted 6.1% last year. The measures include loans for the unemployed, consumption vouchers and tax relief. Hong Kong Finance Minister Paul Chan forecast the economy is set to grow 3.5% to 5.5% this year.
The move to raise the tax on stock trading, the first in three decades, pulled shares in Hong Kong Exchanges & Clearing Ltd., which runs the bourse, down by as much as 12.4%. They closed 8.8% lower.
The yield on the 10-year Treasury note, which has climbed recently, was up at 1.38% on Wednesday.
When bond yields rise, stock prices tend to be negatively impacted because investors turn an increasingly larger portion of their money toward the steadier stream of income that bonds provide.
Since the pandemic began, investors have pushed prices of Big Tech stocks to stratospheric heights, betting that quarantined consumers would do most of their shopping online and spend more on devices and services for entertainment.
The bet mostly paid off. But the pandemic may be reaching its end stages, with millions of vaccines being administered each week in the U.S. and across the globe now. It may cause consumers to return to their pre-pandemic habits.
More broadly, investors remain focused on the future of global economies badly hit by COVID-19 and the potential for more stimulus to fix them. The US House of Representatives is likely to vote on President Joe Biden’s proposed stimulus package by the end of the week. It would include $1,400 checks to most Americans, additional payments for children, and billions of dollars in aid to state and local governments as well as additional aid to businesses impacted by the pandemic.
In other trading, US benchmark crude oil rose 63 cents to $62.30 per barrel in electronic trading on the New York Mercantile Exchange. It lost 3 cents on Tuesday to $61.67 per barrel. Brent crude, the international standard, gained 77 cents to $65.25 per barrel.
Copper hovered near 9-1/2 year highs on Wednesday on a weaker dollar, low inventories and hopes that the metal will benefit from higher demand as major economies recover from the impact of coronavirus.
Benchmark three-month copper on the London Metal Exchange (LME) rose 0.3% to $9,231 per tonne by 1200 GMT, after touching a peak of $9,342. It was on track for its fifth straight session of gains.
“After looking at the macro background, I think there could still be legs in (the copper price rally) during the next three months or so,” said ING analyst Wenyu Yao.
“The macro story of strong growth and higher inflation is likely to be the main theme.”
Low global inventories of copper - which is used in power and construction - and rebounding demand in Europe and the United States have boosted the price in recent sessions.
On Wednesday, Germany’s economy beat growth expectations due to strong exports and solid construction activity.