Stocks slip as investors turn cautious ahead of Fed
meeting
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[April 26, 2021] By
Tommy Wilkes
LONDON (Reuters) - Stocks gave up early
gains on Monday as confidence that economies are recovering rapidly was
overshadowed by caution over the speed of the market's rally and ahead
of a U.S. Federal Reserve policy meeting.
The start to the week was quiet as investors refrained from taking on
large positions before a two-day Fed meeting that will begin on Tuesday
and the impending release of quarterly gross domestic product numbers
for the United States.
Investors have remained ebullient in recent weeks, with Wall Street
hitting another intraday record high on Friday and European shares not
far off their own record highs.
But there was some limited selling on Monday in Europe.
The Euro STOXX 600 was down 0.1% by 1050 GMT while Germany's DAX lost
0.13%. Britain's FTSE 100 was flat.
Wall Street futures pointed to a weaker open after Friday's gains.
Asian shares rallied, however. MSCI's broadest index of Asia-Pacific
shares outside Japan reached its highest since March 12, despite a late
selloff in Chinese shares.
That helped offset the falls in Europe and lift the MSCI world equity
index, which tracks shares in 49 countries, by 0.16%.
Stocks -- as well as most other risk assets -- are basking in a massive
rally. The MSCI world index has suffered only three down months in the
past 12 and is up nearly 5% this month and 9% for the year as investors
bet on a rapid post-pandemic economic rebound turbocharged by vast
government and central bank stimulus.
For a graphic on MSCI World Equity Index:
https://fingfx.thomsonreuters.com/
gfx/mkt/oakpewrjepr/world%20stocks%202021.PNG
Analysts, however, say stocks look a little overvalued and that the
rally will run into hurdles after setting such a lightning pace and with
so much of the economic recovery and fiscal stimulus splurge already
priced in.
"The real crux of the issue, however, is what's in the price. The
year-to-date rally has increasingly eliminated upside to our targets,"
noted Andrew Sheets, a strategist at Morgan Stanley.
"Across four major global equity markets (the U.S., Europe, Japan and
emerging markets), only Japan is currently below our end-2021 strategy
forecast."
BOLSTER CONFIDENCE
Still, recent data pointing to a solid global economic recovery has
bolstered confidence and limited any investor nervousness, as have
strong corporate earnings and the continued rollout of COVID-19
vaccinations in developed economies.
[to top of second column] |
The London Stock Exchange Group offices are seen in the City of
London, Britain, December 29, 2017. REUTERS/Toby Melville
Early April manufacturing activity indicators out last week pointed to a robust
start to the second quarter with data hitting record highs in the United States
and signalling an end to Europe's double-dip recession.
First-quarter U.S. gross domestic product data due later in the week is likely
to show activity probably returned to pre-pandemic levels, analysts said.
Most observers expect the Fed will stick to its pledge to keep stimulus flowing
easily until the economy has recovered sufficiently and downplay the threat of
rising inflation -- any suggestion otherwise could knock confidence sharply.
"The equity market is happy that the Federal Reserve is likely to continue with
no new guidance on eventual tightening of policy as it wants to react to
outcomes rather than anticipating them and believes that any inflationary rise
in coming months will prove transitory," said Steen Jakobsen, Chief Investment
Officer at Saxo Bank.
In currencies, the dollar -- which had benefited from rising Treasury yields the
past few months - fell against a basket of currencies to its weakest since March
3. Other major currencies were little changed.
Bitcoin snapped a five-day losing streak with an 8.5% jump. Cryptocurrencies
fell on Friday on concern that U.S. President Joe Biden's plan to raise capital
gains taxes would curb investments in digital assets.
Those tax proposals, while raising hackles among some investors, caused only a
temporary blip in stock markets' march higher.
Government bond yields rose as investors dumped safer assets.
The U.S. 10-year Treasury yield rose 2 basis points to 1.5843% but that is some
way off the plus-1.7% levels hit earlier this month when fears about a spike in
inflation rattled markets. Euro zone government bond yields also ticked higher.
Turkey's lira rebounded 1.3% following its recent slide but remains close to an
all-time low as a chill settled on relations with the United States and after
the new central bank chief signalled rate hikes would harm the economy.
In commodities, U.S. crude fell $1.01 to $61.13 per barrel and Brent eased $1.11
to $65.
Gold climbed 0.1% to $1,779 an ounce.
(Editing by Ed Osmond and Bernadette Baum)
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