World stocks held near three-week highs yesterday, helped by a decline in borrowing costs ahead of Federal Reserve Chairman Jerome Powell’s first testimony before the United States Congress.
The MSCI All-Country World Index, was up 0.1 per cent by afternoon trade in Europe. Although it has recovered two-thirds of its losses from a selloff earlier this month, the index is set to break a 15-month streak of gains since Donald Trump won the US elections in November 2016. This month’s decline will be its worst since January 2016.
After gains in opening deals, European shares turned red, with the pan-European STOXX 600 down 0.3 per cent. Britain’s FTSE 100 advanced 0.1 per cent.
Japan’s Nikkei rose 1.1 per cent to three-week highs while MSCI’s broadest index of Asia-Pacific shares outside Japan also hit a three-week high before giving up gains on profit-taking in Chinese shares.
The 10-year US Treasuries yield eased to 2.8715 per cent, dropping further from its four-year peak of 2.957 per cent touched on February 21, driven by month-end buying as well as position adjustments.
Many investors expect the Fed to raise interest rates three times this year, with some pundits predicting four, if US inflation starts to take off, especially as growth is set to get another boost from the Trump administration’s tax cuts and spending plans.
Yet, there are worries that higher dollar bond yields could prompt investors to shift funds to bonds from riskier assets, especially when the valuation of the world’s stocks are quite expensive even after their sell-off earlier this month.
The two-year US Treasuries yield was 2.2219 per cent, well above the dividend yield of the S&P 500, which stood at 1.88 per cent.
Fed funds rate futures were almost fully pricing in a rate hike at the Fed’s next policy meeting on March 20-21.
Any talk of ‘overheating’ or risks of an ‘inflation overshoot’ could result in the money markets revising up estimates of where the terminal fed funds rate might end up in this cycle.
A rise in dollar interest rates could also bode ill for potential borrowers, including US home buyers and many companies that have expanded borrowing for years to take advantage of low dollar funding costs. Against a basket of currencies, the dollar traded 0.1 per cent higher.
Elsewhere in currencies, the euro was flat at $1.2317, off its three-year high of $1.2556 hit earlier this month.
Oil edged lower ahead of weekly data that is forecast to show a rise in US crude inventories, although investor faith in Opec’s ability to curtail production helped stem a larger price slide.
US West Texas Intermediate futures fetched $63.65, down 0.4 per cent, after hitting a three-week high of $64.24 the previous day.
London Brent crude traded 0.3 per cent lower at $67.34 a barrel, after hitting a three-week high of $67.90 the previous day.