Public debt rises as Europe tightens Covid restrictions
Government bonds rose as US stocks fell on Friday as new coronavirus brakes in Europe and hawkish comments from US policymakers prompted investors to turn to safe-haven assets.
The broad S&P 500 stock index ended the day 0.1% lower after fluctuating between minor gains and losses as the rise in tech stocks was tempered by declines in US financial services groups and energy companies . Despite the loss, the index ended the week up 0.3 percent.
The Nasdaq Composite Index, which brings together technology and healthcare companies, ended the day up 0.4%, marking its second consecutive record close.
The European Stoxx 600 index closed 0.3% lower on Friday, but remained close to its all-time high. Brent crude, the benchmark for oil, stabilized at 2.9% at $ 78.89 per barrel.
Meanwhile, in government debt markets, the yield on 10-year treasury bills fell 0.04 percentage points to 1.55% as the price of the benchmark debt rose. The 10-year German Bund yield fell 0.07 percentage point to minus 0.35%.
The measures came after Austria put in place a lockdown to combat rising Covid-19 cases and Germany, the Czech Republic and Slovakia tightened restrictions on coronaviruses.
Investors have also digested hawkish remarks from Federal Reserve officials, with Vice President Richard Clarida opening the door to a faster withdrawal from the central bank’s massive asset purchase program, suggesting the Fed may take steps. measures earlier than expected to bring inflation under control.
The Fed cuts its bond buying program by $ 120 billion per month, reflecting a rebound in hiring and consumer spending, while consumer price inflation peaked in three decades of 6, 2% in October. A faster slowdown could also pave the way for earlier interest rate hikes.
Earlier on Friday, Fed Governor Christopher Waller said he would support a faster cut, which would give the central bank more flexibility to raise rates “if necessary”.
The comments helped spark a massive selloff in policy-sensitive two-year Treasuries, with the yield on the notes rising 0.01 percentage point to 0.51%.
During the pandemic, investors in U.S. stock markets often switched between tech stocks and economic growth indicators such as banks and industry groups as the outlook for a global economic recovery shifted. But the perception that US and European central banks will keep borrowing costs at record highs until they no longer perceive Covid as a major economic threat has boosted stock markets in general since March 2020.
“It’s always difficult to argue with the theme ‘keep buying stocks’,” said Ross Mayfield, strategist at RW Baird. “Given the interest rate situation. ”
European Central Bank President Christine Lagarde said on Friday that “we must not rush into premature tightening”. The euro lost 0.8% against the dollar at $ 1.13.
The ECB’s main deposit rate is at minus 0.5% while the Fed funds rate is close to zero.
The dollar index, which measures the US currency against six others, rose 0.5 percent. Emerging market currencies, whose prospects are threatened by inflation and the Chinese slowdown, have weakened.
The Turkish lira fell to 11.3 TL to the dollar earlier on Friday, a record low, after the country’s central bank cut interest rates on Thursday despite inflation hitting nearly 20% last month. The South African rand was at R15.7 to the dollar, its lowest level in more than a year.
Hong Kong’s Hang Seng Stock Index closed 1.1% lower after Chinese e-commerce group Alibaba cut its sales forecast, citing slower growth in consumer spending in the world’s second-largest economy
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