By Thyagaraju Adinarayan, Hideyuki Sano and Pete Schroeder
(Reuters) – World stock markets dabbled with new peaks on Monday, while U.S. bond yields were near three-month lows as worries over rising inflation abated and investors anticipated the U.S. Federal Reserve sticking to its dovish course this week.
The Dow Jones Industrial Average fell 123.31 points, or 0.36 percent, while the S&P 500 lost 8.03 points, or 0.19 percent, in early trading. The Nasdaq Composite added 15.91 points, or 0.11 percent, to 14,085.34.
In Europe, the STOXX 600 index rose 0.15% after hitting record highs, lifted by the prospect of a broadening economic recovery from COVID-19 and anticipation of dovish monetary policy from central banks.
Recovery bets also boosted oil to May 2019 highs as investors apparently view Thursday’s above-forecast U.S. inflation data and surging factory prices in China as temporary or manageable.
Goldman Sachs economists said concerns that rising inflation will derail the market recovery or lead to sharply higher bond yields were probably misplaced.
“The bond market continues to show a vote of confidence in the Fed remaining patient and lower for longer. The stock market is similarly emboldened and hovering around all-time highs,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
Yields on the 10-year U.S. Treasuries rose one basis point at 1.47%, after falling to a three-month low of 1.43% on Friday.
Many investors expect the Fed to repeat its dovish view at its two-day meeting from Tuesday.
Markets in Asia were calmer with China, Hong Kong and Australia closed for a holiday. Japan’s Nikkei rose 0.7%, while MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.1%.
Broader markets largely shrugged off the weekend’s G7 meeting, which scolded China over human rights in its Xinjiang region, called for Hong Kong to keep a high degree of autonomy and demanded a full and thorough investigation of the origins of the coronavirus in China.
BITCOIN BUMP
In currencies, the euro has lost steam after the European Central Bank last week showed no willingness to reduce its stimulus and traded at $1.2109, having fallen to a one-month low of $1.2093 on Friday.
The yen stood little changed at 109.92 yen, while the British pound changed hands at $1.4108, near the lower end of its trading range over the past month.
Bitcoin held its weekend gains, when Elon Musk flagged Tesla’s possible resumption of transactions using the token. It was last bought at $40,514.
Fed BS vs. VIX https://fingfx.thomsonreuters.com/gfx/buzz/yxmvjaydqpr/Pasted%20image%201623659154629.png
(Reporting by Thyagaraju Adinarayan in London, Hideyuki Sano in Tokyo and Pete Schroeder in Washington. Additional reporting by Tom Westbrook in Singapore; Editing by Jacqueline Wong, Alexander Smith, Chizu Nomiyama and Dan Grebler)
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