Wall Street’s stocks rebounded to record highs and a rally in core government debt paused on Friday as investors shrugged off caution about the global economic outlook to focus on buying opportunities.
The S&P 500, the blue-chip US gauge, hit another high, rising 1.1 per cent by the closing bell in New York after having slid 0.9 per cent a day earlier amid fears of an economic slowdown in China and worries linked to the spread of the Delta variant of Covid-19. The tech-heavy Nasdaq Composite ended the week almost 1 per cent higher.
The pattern was repeated in Europe, where the continent-wide Stoxx 600 index closed up 1.3 per cent, after sliding 1.7 per cent in the previous session.
“Equity markets are in a state of indecisiveness but with an upward drift,” said Sunil Krishnan, head of multi-asset funds at Aviva Investors.
“There are times when the upward drift has looked almost too smooth, so you do get corrections. But a lot of investors will have been waiting on the sidelines to increase their positions.”
S&P 500-listed companies are expected to report aggregate earnings growth of 65 per cent for the second quarter of the year, compared with the same period in 2020, according to analysts’ forecasts collated by the exchange traded fund provider WisdomTree. Companies on the MSCI Europe equity index are predicted to have lifted their profits by 109 per cent over the same time period after the eurozone economic recovery from Covid-19 lagged behind that of the US.
A rally in government bonds also reversed on Friday, with the yield on the benchmark 10-year US Treasury, which moves inversely to its price, climbing 0.07 percentage points to 1.36 per cent. The yield had its second consecutive weekly decline.
This week the higher price of Treasuries had sent the yield on the 10-year note to a low last seen in February following weaker than expected US service sector growth, with analysts speculating that trend-following algorithmic funds had also increased the magnitude of the move.
In Asia, China’s central bank announced a half a percentage point cut to banks’ reserve ratio requirements, potentially increasing the profitability of their loans but also stirring concerns about the health of their balance sheets following a debt-fuelled property boom.
“Let me be plain, this [reserve ratio requirement] cut is not a positive signal,” ING Greater China chief economist Iris Pang said.
“This gives me a sense of unease,” she added. “Are banks under stress?”
Julian Evans-Pritchard, of Capital Economics, said the cut was instead intended to “nudge banks to lower lending rates”.
China’s CSI 300 slid 0.4 per cent on Friday, taking the index of Shanghai and Shenzhen-listed stocks down almost for 3 per cent so far for this month.
The US Dollar index, which measures the greenback against other major currencies, fell 0.3 per cent although it remained around its highest level since early April.
Brent crude, which hit a multiyear high this week of $77.84 a barrel following the failure of Opec+ members to decide on the level of output, landed at $75.56 a barrel at the end of trading in New York.
Unhedged — Markets, finance and strong opinion
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