U.S. 10-year T-bill rates are down 7 basis points, according to. * MSCI World index is down 0.5 percent; Asia ex-Japan is down 1.7 percent; U.S. stock futures are down 1.3 percent. * Graphic: FX rates around the world tmsnrt.rs/2RBWI5E * Government bond yields in the Eurozone’s periphery tmsnrt.rs/2ii2Bqr (Reuters) – LONDON, July 8 (Reuters) – On Thursday, U.S. treasuries led a broad-based bond rally as concerns about the strength of the economic recovery grew and inflation fears faded, while equities fell throughout the world. The new wave of pessimism followed a pattern set earlier in the week, and comes as central bankers grapple with concerns over the speed with which the economy recovers from the COVID-19 outbreak, as well as the impact on inflation. “The bond market bears have given up and thrown down the towel,” Chris Scicluna, head of economic research at Daiwa Capital Markets in London, said as benchmark 10-year yields fell to 1.25 percent, the lowest level since February. That came after the Federal Reserve of the United States said on Wednesday that it had no imminent intentions to tighten monetary policy. Bond prices have risen sharply this week, prompting a “serious debate” regarding their origin, according to Deutsche Bank analyst Jim Reid. Some see the increase as an indication that the market is re-pricing the risk of secular stagnation in the aftermath of the epidemic, while others point to technical factors such as less Fed supply and higher demand to buy, he added. Despite the drop in US yields, Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, expects the benchmark to rebound, according to the Swiss adviser to many of the world’s super-rich. “We estimate the 10-year yield to approach 2% by the end of the year, driven by the prospect of a Fed taper announcement in the coming months, robust economic growth driving ongoing strength in nonfarm payrolls, and further (post-pandemic economic) openings.” In other central bank news, the European Central Bank released the results of a strategy review on Thursday, announcing that it will set a new inflation target of 2%, up from its prior target of “below but close to 2%.” Ten-year German yields were down three basis points. STOCKS With risk aversion gripping markets, equities were a sea of red, with the S&P 500 down 1.3 percent at the outset, matching declines in Europe and Asia. The MSCI’s benchmark index of global equities was down 0.5 percent in early trading, matching a 1.6 percent drop in the corresponding index of Asia shares outside Japan to its lowest level since mid-May. China’s efforts to reign in its internet behemoths have fueled this, with the most recent example being Didi, a U.S.-listed company that was ordered to remove its app off shop shelves. Despite the decrease, the global index is still trading inside a broad trading range that has been in place since late June and is only below its all-time high. Meanwhile, the STOXX Europe 600, a broad index of Europe’s largest corporations, was down 1.9 percent. “We feel valuations are frothy not just in India, but in several geographies around the world,” said Nikhil Kamath, Co-Founder and Chief Investment Officer of asset manager True Beacon. “Today, we are hedged up to 55 percent, and our net market exposure is only about 45 percent.” THE RISK OF RECOVERYI In addition to the tech crackdown, Chinese officials’ advice toward rate cuts has alarmed some investors by underlining fragility in China’s economy – sluggish credit growth and slow demand – which threatens the global recovery’s pace. On Wednesday, China’s cabinet announced that officials will employ timely reductions in the bank reserve requirement ratio (RRR) to help the real economy, particularly small businesses. On Thursday, the yield on 10-year Chinese sovereign paper fell to its lowest level in nearly a year, falling to 2.998 percent, the lowest since August. In currency markets, the dollar fell 0.3 percent against a basket of major counterparts. On the back of harsh statements from Chinese regulators, cryptocurrencies were dumped, and bitcoin plummeted to a more than one-week low. Oil was under pressure as a wave of new virus diseases swept Asia and the world, potentially reducing demand, while traders predicted a likely increase in supply following the breakdown of producer talks. Brent crude futures were down 0.4 percent at $73.12 a barrel, while US crude was down 0.6 percent. Tom Westbrook, Yoruk Bahceli, and Brenna Hughes-Neghaiwi contributed additional reporting, and Kirsten Donovan, Angus MacSwan, Barbara Lewis, and William Maclean edited the piece./n
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