Stocks Hit Record, Bonds Drop on Reflation Trade: Markets Wrap

(Bloomberg) — Global equities reached another record and Treasury yields rose after Janet Yellen pushed for rapid U.S. stimulus and coronavirus infections slowed across the globe. The dollar steadied after Friday’s slide.

S&P 500 and European futures advanced after the U.S. gauge hit a record on Friday. Japan’s Topix index was on course for its highest close since 1991 amid a report that officials are considering an early end to the state of emergency in 10 Japanese prefectures.

Treasury Secretary Yellen said on Sunday talk shows that the U.S. can return to full employment in 2022 if it enacts a robust enough relief package. Ten-year Treasury yields crept higher toward 1.2%. The pace of U.S. inflation implied by the bond market advanced to its highest level since 2014, as crude oil prices rallied.

Investors are taking comfort from the continued rollout of vaccines and data suggesting a declining trend in infections in countries like the U.S. and Germany. A Citigroup Inc. gauge of global risk aversion has dropped to its lowest since the pandemic first roiled markets last year.

While the weaker-than-forecast U.S. jobs data Friday reinforced the fragility of the recovery as the pandemic lingers, it also highlighted the case for further stimulus. A larger American relief package runs the risk of boosting inflation and overheating asset prices, some have warned. The pace of U.S. inflation over a 10-year horizon that’s implied by the bond market has surged to the highest level since 2014, with investors wagering on an economic recovery.

“It does seem to be the case that global markets have now become addicted to stimulus and that the greatest risk to the outlook — and potential trigger for a correction in risk-asset valuations — would be central banks dialing down the music,” said Simon Ballard, chief economist at First Abu Dhabi Bank Pjsc.

Here are some key events coming up:

Earnings season continues with companies including Honda Motor, SoftBank Group, Cisco Systems, Commonwealth Bank of Australia, Societe Generale, Commerzbank and L’Oreal.EIA crude oil inventory report comes Wednesday.Sweden will set monetary policy on Wednesday.Federal Reserve Chairman Jerome Powell will speak on a webinar Wednesday.The U.S. consumer price index comes Wednesday.Lunar New Year public holidays begin in nations across Asia, with China breaking for a week.Bank of Russia’s policy decision comes Friday.

These are the main moves in markets

Stocks

S&P 500 futures added 0.5% as of 12:15 p.m. in Tokyo. The gauge rose 0.4% on Friday.Japan’s Topix index rose 1.7%.Hong Kong’s Hang Seng Index advanced 1.1%.South Korea’s Kospi index was little changed.Australia’s S&P/ASX 200 Index rose 0.8%.Shanghai Composite Index rose 1.2%.Euro Stoxx 50 futures gained 1%.

Currencies

The Bloomberg Dollar Spot Index was little changed.The yen was at 105.44 per dollar, down 0.1%.The offshore yuan was little changed at 6.4531 per dollar.The euro bought $1.2038, down 0.1%.

Bonds

The yield on 10-year Treasuries rose to 1.18%.Australia’s 10-year yield advanced six basis points to 1.26%.

Commodities

West Texas Intermediate crude oil gained 0.9% to $57.34 a barrel.Gold was little changed at $1,811.71 an ounce.

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