Marketmind: Record world stocks leave bonds in gloom
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[February 23, 2024] A
look at the day ahead in U.S. and global markets from Mike Dolan
Global stocks captured by MSCI's all-country index surpassed 2022's
peaks on Friday and soared to new records - leaving bonds unloved.
As the dust settles on another Nvidia-led AI feeding frenzy on Wall
Street, interest rate markets have sulked back to mid-December settings
- dragged there by the ebullience of the wider economy and a stubborn
Federal Reserve.
With U.S. labor markets still in fine fettle, corporate profit growth in
double digits and surging stocks loosening financial conditions again,
rate futures now finally agree with what the Fed told them in December -
only 75 basis points of rate cuts are likely this year and not starting
until second half of 2024.
Kicking and screaming, bond markets have dialed back the clock to
December too - with 2-year Treasury yields hitting their highest since
December 11, just before the Fed meeting that month, and 10-year yields
hitting the highest since November. The dollar was firmer.
The contrast with the stock market couldn't be starker, and it sees a
breakdown in a long-running correlation of both asset classes - a return
to normal patterns in some respects.
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Sparked by Nvidia's latest blowout earnings report, its 15% stock surge
and general excitement about a "tipping point" in generative artificial
intelligence, Thursday was the best day in more than a year for Wall
St's main stock indexes.
That catapulted the S&P500, Dow Jones back to record closing highs and
the Nasdaq came within 1% of a new all-time peak too.
With annual profit growth of S&P500 companies through the fourth quarter
now running at more than 10%, the main indexes are now up 6-7% for 2024
so far - and we're still in February.
World stocks have followed suit, with Japan's Nikkei finally vaulting
1989 peaks on Thursday before taking Friday off for a holiday.
More subdued Chinese stock indexes eked out only another marginal gain -
but they have now closed higher for nine sessions straight, lifted by
some hopes the authorities were finally getting a grip on the property
sector bust and spluttering economy.
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Traders work on the floor at the New York Stock Exchange (NYSE) in
New York City, U.S., January 31, 2024. REUTERS/Brendan McDermid/File
Photo
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The scale of the problem was clear in data showing China's new home
prices continuing their downward trend with a drop of 0.3% in
January, even though the pace of that decline slowed from the prior
month and the biggest cities saw some stabilization.
Expecting further monetary stimulus ahead, ten-year Chinese
government bond yields fell to 2.39% - the lowest since June 2002 -
and the yuan weakened.
In Europe, German business morale brightened in February, in line
with analysts' expectations. But it's badly needed as it was also
confirmed that the German economy shrank by 0.3% in the final three
months of 2023.
In banking, Standard Chartered's stock surged 8% after its results
as chief executive Bill Winters acknowledged the bank's
underwhelming share price and vowed to fix it as the lender
announced increased dividends, a fresh $1 billion buyback and an 18%
increase in annual profit.
Key diary items that may provide direction to U.S. markets later on
Friday:
* Federal Reserve Board Governor Christopher Waller speaks
* European Union and Eurogroup finance ministers meet in Ghent, with
European Central Bank President Christine Lagarde
* President of Argentina Javier Milei meets U.S. Secretary of State
Antony Blinken in Buenos Aires
* U.S. corp earnings: Warner Bros Discovery, Intuit
(By Mike Dolan, editing by Jane Merriman mike.dolan@thomsonreuters.com)
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