LONDON-World stocks rose yesterday, hovering near a 29-month high on further signs of global economic recovery, and copper rallied to a record high while US ten-year Treasury yields hit their highest since May. Oil prices were also higher, while the euro fell to a two-week low against the dollar after a bigger than expected fall in German industrial orders. World equities as measured by the MSCI All-Country World Index advanced 0.2 per cent after gaining 2.2 per cent last week. The index is up 3.4 per cent so far this year, while MSCI emerging markets index is down two per cent.
"At the moment, clients are feeling that any dips can be bought into and the trend is an upwards one, and I can't see that being thrown off course in the short term," said Giles Watts, head of equities at City Index in London. Concerns over higher inflation in booming emerging markets, further indications of economic recovery gathering pace in the United States, modest valuations and tentative signs of stability in the euro zone sovereign debt crisis have fueled the outperformance of shares in developed markets. Data from fund tracker EPFR Global showed investors pulled out US$7 billion from emerging markets equity funds in the week of February 4, their biggest outflow in three years.
The US S&P 500 and Dow Jones industrial average hit new 2-1/2-year highs on Friday as a fall in US unemployment raised optimism of a labour market recovery. US stock index futures put on 0.3 per cent, indicating a firm open on Wall Street. The pan-European FTSEurofirst 300 rose 0.9 per cent yesterday, while Germany's DAX added 0.9 per cent, shrugging off the news that German industrial orders fell by 3.4 per cent on the month in December. Japan's Nikkei average put on 0.5 per cent, hitting a nine-month high. In terms of valuations, the S&P 500 carries a 12-month forward price-to-earnings ratio of 13.3 times, compared with a ten-year average of 15.5 though more expensive than the emerging markets index's 11.3 times, Thomson Reuters Datastream shows.
TREASURY YIELDS UP
As optimism over the US economic recovery grew, investors were also shifting away from government bonds. Yields on benchmark ten-year Treasuries rose three basis points to 3.6701 per cent, their highest level since early May and up about 28 basis points since the start of the month. "Investors are now reflecting that an ever-improving outlook for the US is a new factor in the equation, which is weighing quite heavily on US Treasuries," said Kornelius Purps, strategist at Unicredit in Munich. "We have not only the (non-farm) labour report-which was a mixed bag but seen as a positive-we have the ISM, which were extremely positive and indicate the US economy is recovering at quite a healthy clip."
Spreads on ten-year Portugese government bonds over benchmark German Bunds rose 5 bps to 386 bps, though still down about 8 bps since the beginning of the month, after Portugal, one of the weakest euro zone economies, planned a five-year syndicated bond. The euro eased 0.3 per cent to US$1.3552, while the dollar was up 0.2 per cent against a basket of major currencies. Copper put on one per cent to US$10,152.75 a tonne after hitting a record high of US$10,153.50, while benchmark US oil futures rose 0.3 per cent to trade above US$89 a barrel. (Reuters)