Global shares rise, oil up on Middle East tensions

Tuesday, 16 February 2021

Global shares rose for the 11th day in a row to reach a fresh peak on optimism about the rollout of COVID-19 vaccines and new fiscal aid from Washington, while tensions in the Middle East drove oil to a 13-month high.

As more people are vaccinated across key markets such as the United States, and with US President Joe Biden looking to pump an extra $1.9 trillion in stimulus into the economy, the so-called reflation trade has gathered steam in recent days, reports Reuters.

On Friday, the Cboe Volatility Index, known as Wall Street’s “fear gauge”, ended at its lowest level for nearly a year, helping to drive a 0.4 per cent gain for MSCI’s broadest measure of world stocks on Monday.

Taking its cue from a stronger, albeit holiday-thinned, Asian session, Europe’s major indexes were a sea of green in early deals, with Britain’s FTSE 100 up 2.2 per cent.

With China and Hong Kong markets closed for the Lunar New Year holiday, Japan’s Nikkei led the way, climbing 1.9 per cent to reclaim the 30,000-point level for the first time in more than three decades.

E-mini futures for the S&P 500 were also higher, up 0.5 per cent, although US stock markets are closed on Monday for the Presidents Day holiday.

Later in the week, all eyes will be on the release of minutes from the US Federal Reserve’s January meeting, where policymakers decided to leave rates unchanged, for hints about the likely direction of monetary policy.

Those concerned about the impact of market exuberance on the outlook for inflation will also have fresh data to parse, with Britain, Canada and Japan all due to report. Friday will also see major economies, including the United States, release preliminary February purchasing managers’ indexes (PMI).

“We believe investors should prepare for bouts of volatility ahead, but regard them as opportunities rather than threats,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “We recommend investors stick to their long-term financial plans, and continue to put excess cash to work.”

Oil joined equity markets in pushing higher, reaching its highest level since January 2020 on hopes US stimulus will boost the economy and fuel demand and after a Saudi-led coalition fighting in Yemen said it intercepted an explosive-laden drone fired by the Iran-aligned Houthi group.

Brent crude rose 1.2 per cent to $63.15 a barrel. US crude oil gained 1.2 per cent to $60.21, just off earlier highs.

With risk assets in favour, safe havens dipped, with gold down 0.2 per cent to $1,819 an ounce. Germany’s 10-year Bund yield rose 4 basis points to a 5 1/2-month high at -0.376 per cent and 30-year bond yields, up 20 bps so far this month, rose to an eight-month high at 0.13 per cent. They had traded in negative yield territory earlier this month.

Switzerland’s 30-year government bond yield, meanwhile, rose above 0% for the first time since early 2020.

The dollar remained near two-week lows as traders took a more cautious view of the pace of the US economy’s rebound. Against a basket of currencies it was last down around 0.1 per cent.

Bitcoin, meanwhile, recovered some of its overnight weakness to trade down 1.8 per cent at $47,801.18, below a record high of $49,714.66.