TOKYO, June 14 (Reuters) – Global shares held near record highs on Monday while U.S. bond yields flirted with three-month lows as investors expect the Federal Reserve to stick to its dovish mantra later this week.
Japan’s Nikkei rose 0.7% while MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.2%. Activity was limited with the region’s largest markets – China, Hong Kong and Australia – closed for a holiday.
Globally, markets were basking in the prospect of a broadening economic recovery from the coronavirus pandemic and anticipation of continuity in dovish monetary policy from the U.S. Federal Reserve. Oil stood at multi-year highs.
The MSCI world equity index, the U.S. S&P 500 and the pan-regional STOXX Europe 600 index all closed at record highs on Friday. EuroSTOXX 50 futures rose 0.2% on Monday. S&P 500 futures nudged up 0.1%
The rally came even as U.S. inflation data on Thursday exceeded market expectations and amid surging factory prices in China – both of which investors appeared to regard as temporary or manageable.
“Strip used cars, hotels, and other leisure-related reopening plays out of the (U.S.) CPI, and I am not sure the inflation outlook is the end of days many are predicting,” said OANDA analyst Jeffrey Halley in a note on Monday.
“Yes, PPIs are racing higher, but will that be reflected in higher consumer goods prices from China? I am not so sure on past experience…the honest answer is that we just don’t know yet. Certainly, that’s what the U.S. bond market is saying to us.”
Ample funds are finding their way to bonds, where the yield on 10-year U.S. Treasuries stood at 1.4602% ahead of the Fed’s policy meeting this week, having fallen to a three-month low of 1.428% on Friday.
“It is becoming painful for bond bears and I bet the 10-year yield will fall to 1.25% or even 1%,” said Akira Takei, fund manager at Asset Management One, noting that the U.S. economic recovery is likely to slow in coming months.
Speculators are also building up long positions in U.S. debt, with their net long positions in U.S. bond futures hitting the highest level since October 2017, U.S. financial watchdog data showed.
Many investors expect the Fed to repeat its dovish view at its two-day meeting from Tuesday.
While some Fed board members have said the central bank should start discussing tapering its bond buying, most investors think a majority of policymakers still prefer to wait a bit more.
“There will probably be no surprise from the Fed this week,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “But in the longer term, there’s clear risk of the Fed’s stimulus becoming excessive.”
In the currency market, the euro has lost steam after the European Central Bank last week showed no willingness to reduce its stimulus either.
The euro traded at $1.2099, having fallen to a one-month low of $1.2093 on Friday.
The yen stood little changed at 109.72 yen.
The British pound changed hands at $1.4108, near the lower end of its trading range over the past month, ahead of British Prime Minister Boris Johnson’s announcement on Monday on whether its planned lifting of coronavirus restrictions can go ahead as scheduled on June 21.
British tabloid The Sun on Friday reported Johnson is set to delay lockdown lifting to July 19.
Meantime, oil prices held at multi-year highs on an improved outlook for worldwide fuel demand. Brent crude futures inched up 0.5% to $73.07 per barrel, their highest since May 2019. U.S. crude futures added 0.5% to $71.32 per barrel, their highest since October 2018.
Bitcoin held on to gains won on the weekend when Elon Musk flagged Tesla’s possible resumption of transactions using the token. It last bought $39.267.
(Reporting by Hideyuki Sano in Tokyo. Additional reporting by Tom Westbrook in Singapore; Editing by Kenneth Maxwell and Jacqueline Wong)