World stocks steam higher as inflation fears suddenly fizzle

From Reuters - February 15, 2018

LONDON (Reuters) - Stocks, bond yields and commodities steamed higher on Thursday while the dollar tumbled, as investors suddenly seemed to forget the inflation fears blamed for a brutal market sell-off in recent weeks.

Economists were struggling to explain the turnaround except for the argument that historically its not unusual for stocks and bond market borrowing costs to rise in tandem with a rapidly expanding economy.

Some just blamed the weather and time of year. They speculated that strong U.S. inflation data on Wednesday that many had predicted could reignite the rout was probably distorted. They also said the looming Chinese New Year may have caused Asian traders to square up.

Whatever the reason, the animal spirits were back.

Big gains for Wall Street [.N] and Asia overnight put MSCIs 47-country world stocks index .MIWD00000PUS back in positive territory for the year and Europes main markets followed with 0.6 - 1 percent gains. [.EU]

For me its a clear indication that inflation is not as big a threat as people made it out to be over the past couple of weeks, said Lukas Daalder, chief investment officer at Robeco in Rotterdam.

The trend behind the market is still very strongly pointed upwards, he added. 2017 was a very momentum-driven market, and if thats still the case, which after yesterday it appears to be, then we will probably see new highs before too long.

Just as big a puzzle as the rebound in stocks sentiment was the break down in correlation between rising U.S. bond yields and dollar.

U.S. Treasury yields on benchmark 10-year notes US10YT=RR hit a fresh four-year high of 2.94 percent which also dragged gap to 0.786 percent German Bunds

The dollar tumbled though across the board, including to a 15-month low against the yen of 106.18 yen as worries about the U.S. governments finances seemed to set again after a White House-led spending splurge and recent corporate tax cuts.



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