Global equities rise, supported by bottomless stimulus

LONDON (Reuters) – Global stocks rose for a ninth consecutive day on Thursday, just after record highs, as investors digested recent gains, as bulls were supported by pledges of more free money after a report mild US inflation and an accommodative outlook from the Federal Reserve.

European stocks were higher, with the STOXX 600 gaining 0.4% and London’s FTSE 100 rising 0.1%. This follows a moderate Asian session as markets in China, Japan, South Korea and Taiwan were closed for the holidays.

The largest MSCI index of Asia-Pacific stocks outside of Japan added 0.2%, having already climbed for four sessions to gain more than 10% so far this year.

Investors were also reflecting on the first phone call between US President Joe Biden and his Chinese counterpart, Xi Jinping, where Biden said a free and open Indo-Pacific was a priority and the Xi clash would be a “disaster” for both countries.

With Chinese markets shutting down, there has been little reaction to news that the Biden administration will consider adding “new, targeted restrictions” on certain exports of sensitive technology to China and maintain tariffs for now.

S&P 500 futures rose 0.3%, after hitting all-time highs on Wednesday.

The MSCI World Stock Index, which tracks stocks from 49 countries, rose 0.1%. It was not far from the highs reached the day before and only maintained a nine-day streak of gains, a first since October 2017.

“The story remains primarily with US equities,” said James Athey, chief investment officer at Aberdeen Standard Investments. “The earnings season has been particularly strong in the United States, the fiscal stimulus from the Biden administration is gathering momentum in the minds of the market, and most of the big winners from the pandemic are listed in the United States.

“Only the Fed can rock the boat and with the disappointing impression of inflation yesterday, that prospect has just slipped even further into the future.”

Prospects for a more comprehensive stimulus were boosted overnight by a surprisingly soft reading of core inflation in the United States, which fell to 1.4% in January.

Federal Reserve Chairman Jerome Powell has said he wants to see inflation reach 2% or more before even considering cutting back on the bank’s super-easy policies.

Notably, Powell pointed out that once the effects of the pandemic were wiped out, unemployment was closer to 10% than the 6.3% reported and therefore far from full employment.

As a result, Powell called for a “company-wide commitment” to reduce unemployment, which analysts saw as strong support for President Joe Biden, a $ 1.9 trillion stimulus package.

Westpac economist Elliot Clarke estimated that more than $ 5 trillion in cumulative stimulus, representing 23% of GDP, would be needed to repair the damage caused by the pandemic.

“Financial conditions are expected to remain very favorable for the US economy and global financial markets in 2021, and possibly until 2022,” he said.

The mix of bottomless federal funds and a tame inflation report encouraged bond markets, leaving 10-year yields at 1.15%, down from 1.20% earlier in the week.

Italian bond yields remained close to recent lows ahead of a long-term bond auction and as Mario Draghi was due to present his new government coalition in the coming days. Italy’s 10-year BTP yield, or government bond, fell one basis point to 0.490%, near its lowest since early January.

After the US Inflation Report and the Fed’s Powell reiterating rates could stay lower longer, the dollar was lower that day at 90.391, far from a 10-week high of 91.600 hit at the end of last week.

Gold fell 0.1% to $ 1,841.28 an ounce as investors drove platinum to a six-year high on bets of increased demand from automakers. [GOL/]

Oil prices have fallen, having seen the longest winning streak in two years against a backdrop of squeezing supply from producers and hope the vaccine rollout will lead to a pick-up in demand. [O/R]

Brent futures fell 61 cents to $ 60.99. US crude plunged 42 cents to $ 58.27 a barrel.