Global Market Overview

Last updated: May 14, 2013 9:29 pm

Stocks power to fresh highs

Pedestrians are reflected on the electronics quotation board of the window of a security company in central Tokyo©Getty

Tuesday 21:20 BST. Wall Street stocks powered to fresh record peaks and Treasury bonds came under selling pressure as investors put doubts about the prospects for the US economy on the back burner.

The S&P 500 equity index rose 1 per cent to set a record closing high for the third session in a row.

“The stellar Tuesday rally seems to have its roots in remarks made pre-market by Appaloosa fund manager and billionaire investor David Tepper as he reiterated his bullish call on the US economy,” said Andrew Wilkinson, chief economic strategist at Miller Tabak.

“We have also noted that the “sell in May” mantra is falling flat this year, in part because of the improving economy that has strengthened the foundation for the stock market rally,” he said.

The Eurofirst 300 rose 0.5 per cent to its best level since mid-2008, although the Nikkei 225 in Tokyo fell 0.2 per cent – its first decline in three sessions.

But concerns over the pace of global growth remained in evidence elsewhere, with industrial commodities struggling to make progress in the wake of some disappointing economic data from China. Copper fell 2.3 per cent to $7,245 a tonne, while Brent crude settled 22 cents lower at $102.60 a barrel.

Tao Wang, economist
at UBS, said the latest Chinese figures suggested
economic activity in April was again somewhat weaker than expected –
but argued that Beijing
was becoming more tolerant of slower growth.

“Recent evidence suggests that the central government has realised that credit-linked stimulus has become less effective to push investment, and that some financial risks have accumulated at the local government and corporate level,” she said.

“We think the government will keep the macro and property policies stable, with no additional easing such as rate cuts or reserve ratio requirement cuts, nor significant tightening.”

There was also some worrying survey data out of Germany. The ZEW economic sentiment index edged up to 36.4 in May, a much lower reading than expected, while the current situation index moderated slightly.

“All in all, investor expectations have cooled somewhat after a significant improvement witnessed from November through March,” said Thomas Harjes, economist at Barclays.

“Nevertheless, financial investors still expect a robust improvement in activity in the German economy over the next six months and any disappointment in the form of more sluggish growth may trigger some downward correction in equity price valuations.”

But recent signs of resilience in the US economy continued to offer hope to growth bulls.

Indeed, the yield on the US 10-year government bond touched 1.98 per cent, the highest for nearly two months, before easing back slightly, while the German Bund yield rose 1bp to 1.37 per cent.

There was a fresh sell-off in Japanese government bonds that pushed the yield on the 10-year JGB to its highest this year.

The dollar, meanwhile, was up another 0.4 per cent against a basket of currencies and back above the Y102 level.

“The dollar has derived support over the past week from rising government bond yields in the US reflecting heightened speculation that the Fed will taper quantitative easing in the second half of this year,” said Lee Hardman, analyst at Bank of Tokyo-Mitsubishi UFJ.

The euro recovered some of its early losses after Fitch upgraded Greece’s sovereign ratings.

Spanish and Italian government bond prices fell amid speculation that Italy might launch a syndicated debt sale after Madrid attracted strong demand for its new 10-year issue being sold via syndication.

The US currency’s firmer tone helped push gold down $4.50 to $1,425 an ounce.

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