Global stock markets rallied on Monday amid rising hopes for a sustainable economic recovery from Covid-19 and as investors’ concern over a sell-off of government bonds fizzled out.
The FTSE 100 gained more than 100 points to finish the day 1.6% higher at 6,558, as markets in the US and Europe recorded strong advances after a bout of sustained selling pressure last week had left investors nursing heavy losses.
On Wall Street, the Dow Jones climbed by more than 600 points in early afternoon trading, a rise of about 2%, while the S&P 500 gained by a similar amount after a key business survey showed that factory output rose at the fastest rate for three years in February. The tech-heavy Nasdaq index rose by 2.6%, while France’s Cac 40 and Germany’s Dax rose by about 1.6%. In Japan, the Nikkei jumped 697 points, or 2.4%, to 29,663.
After a steady climb over recent weeks, bond yields eased on both sides of the Atlantic as US central bank officials downplayed inflation concerns that have fuelled investor fears and a sell-off in government debt markets over recent weeks.
Thomas Barkin, a US Federal Reserve official, told the Wall Street Journal that while there was “daylight on the horizon” for the US economy and inflation would rise, it would not soar to problematic levels.
Government bond yields – which move in the opposite direction to prices in a reflection of the risks to debt investors – have been rising around the world in recent weeks amid fears that heightened government spending, economic support from central banks, and a rapid recovery from Covid-19 will give way to rising inflation. Such a shift could require higher interest rates from central banks, making access to cheap borrowing tougher for companies and households.
UK inflation rose slightly in January to 0.7% and is expected to rise further over coming months as lockdown measures are relaxed, although it is still at historically low levels as the pandemic saps demand for goods and services.
The yields on 10-year UK government bonds rose to their highest level since March last week after the Bank of England’s chief economist, Andy Haldane, warned that an inflationary “tiger” might be on the loose. However, having risen from below 0.1% to more than 0.8% in the past six months, the yield on 10-year government debt fell back to slightly below 0.8% on Monday.
Reduced investor concern over bond markets has helped fuel a recovery in stock markets, according to Chris Beauchamp, the chief market analyst at the financial trading platform IG Group. “Last week’s concerns have been swiftly forgotten, with a drop back in bond yields certainly helping,” he said. “Investors have jumped on a brief pullback as a chance to pile into equities ahead of the economic recovery expected in the second half of the year.”