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FTSE brushes off renewed bond market sell-off

FTSE 100 and global stock markets continue recovery despite renewed fixed income sell-off on strong US inflation.

 
FTSE brushes off renewed bond market sell-off
 

The FTSE 100 has continued its recovery march, despite a renewed sell-off in the bond market after yesterday's strong US inflation figures.

The UK blue-chip index rose 30 points, or 0.4%, to 7,244, alongside a continued rally across global markets, with the French CAC 40 up 1.3% and the German DAX 30 rising 0.5%.

After a brief fall into the red as stronger-than-expected US inflation figures were released yesterday, markets quickly snapped back into recovery mode, and have continued on that path this morning.

Positive performance from US markets has buoyed sentiment, with the Dow Jones closing 1% higher and the broader S&P 500 rising 1.3% yesterday, and both expected to open higher today.

But it's been a different story for the bond markets, which have extended their sell-off on yesterday's data. The yield on 10-year US treasuries jumped above the 2.9% mark again yesterday, a level it had not hit for four years prior to this week, peaking at 2.939% this morning and currently trading at 2.919%.

Deutsche Bank's Jim Reid said stock markets' resilience appeared to show a renewed optimism in the absence of the big swings in volatility seen in last week's sell-off.

'The price action yesterday perhaps tells us that the normalisation from last week's volatility shock is more powerful for markets for now than the data,' he said.

'However if this inflation trend holds (as has been and still is our expectation) we're in for some real fun and games in markets in 2018 once the dust settles.'

David Madden, market analyst at CMC Markets UK, agreed. 'Investors are viewing the smaller swings on global stock markets as a sign that a lot of the fear has dissipated, and are content to buy back into the market,' he said.

On the FTSE 100, Standard Life Aberdeen (SLA) was the biggest faller, down 6.25 at 365p after Lloyds (LLOY) dropped the fund manager from a contract to run £109 billion of Scottish Widows clients' pension investments.

Utility stocks were hit by the bond market sell-off. Severn Trent (SVT) fell 3.6% to £16.68, United Utilities (UU) was down 2.7% at 651p and Centrica (CNA) fell 1.7% to 125.3p.

Stocks with exposure to South Africa were among the biggest risers, as the country's rand currency jumped following the resignation of president Jacob Zuma.

Financial services group Old Mutual (OML) topped the index, up 3.4% at 247.7p, while paper and packaging group Mondi (MNDI) rose 3.2% to £18.50.

 

 

 

1 comment so far. Why not have your say?

Novgorod

Feb 15, 2018 at 16:04

I think if the next US Non-Farm Payrolls numbers due March 9 confirms sustained wage inflation, then I think a sell-off is entirely possible. Also, what happens if US 10-year Treasury yields move significantly beyond 3%? (at a time when the Fed is selling Treasuries back to the market + there's always speculation over what China is doing with its holdings whilst I gather Japan is a seller).

2018 could indeed be very volatile for shares and if US interest rates (ie bond yields) rise too far, we could soon start talking about recession and one is due after such a long run of albeit fairly modest economic growth.

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