Wall Street’s Nasdaq Composite reached another all-time high while government bonds rallied on Monday as investors brushed aside fears about the Federal Reserve prematurely tightening its monetary policy.
The tech-heavy Nasdaq was up 0.7 per cent at lunchtime in New York, as concerns eased about a rise in borrowing costs that would dent the valuations of high-growth companies such as Apple and Facebook. The broader S&P 500 was flat after closing out its best week since February on Friday.
Core government debt rallied on both sides of the Atlantic, taking the yield on the 10-year US Treasury down 0.07 percentage points to 1.47 per cent while the equivalent German Bund slid 0.03 percentage points to minus 0.19 and the 10-year UK gilt hit 0.72 per cent, having fallen 0.06 percentage points on Monday.
Fed officials this month brought forward their projections for the first post-pandemic interest rate rise by a year to 2023, initially causing gyrations in stock and bond markets and the dollar.
But investors’ nerves were eased last week when Fed chair Jay Powell promised not to raise rates “pre-emptively” and data showed month-on-month US inflation ran slightly below economists’ expectations in May.
Treasury yields have dropped after racing higher in the first quarter of the year, a period when investors bet heavily on hawkish moves by the Fed. That, in turn, prompted fund managers to sell out of tech shares and focus on so-called “value” stocks such as industrial groups and banks that are seen as beneficiaries of an economic recovery from the pandemic.
“In terms of value and growth styles, it now makes sense to hold an even balance,” said Nadège Dufossé, head of cross-asset strategy at fund manager Candriam. “We think central banks will remain very cautious about removing accommodation.”
Attention this week will focus on the monthly non-farm payrolls report for June, out on Friday, which is expected to show a gain of close to 700,000 US jobs compared with 559,000 last month.
“This [jobs] report will be the key focus point,” said Jeremy Gatto, multi-asset fund manager at Unigestion. After Fed policymakers at their previous meeting stressed a commitment to pursuing full employment, “markets are going to place more emphasis on employment data”, Gatto added.
In Europe, companies linked to tourism trailed behind the wider market after Spain, Portugal and Malta unveiled plans to impose new rules on holidaymakers from the UK. The continent’s travel and leisure sector tumbled 4.4 per cent on Monday, lagging behind the broader Stoxx 600 index, which slid 0.6 per cent. The Ibex 35 index in tourism-dependent Spain lost 2 per cent.
Brent crude, the oil benchmark, dropped 1.6 per cent to $74.95 a barrel, but remained around its highest point since April 2019.