Global stock markets were mixed on Thursday, as investors weighed inflation fears against recovery hopes that have fuelled a global bull run and taken stocks to record highs this month.
The reflation trade had taken global stocks to record intra-day highs on Tuesday, and fuelled an 11-day winning streak for MSCI's world index. But the index shed 0.3% on Wednesday and was trading close to flat on Thursday.
European stocks were muted at the open. The continent-wide Stoxx 600 (^STOXX) opened 0.1% higher, after its worst day of the month on Wednesday had seen it dip 0.7%. Germany’s DAX (^GDAXI) also rose 0.1% after sliding 1.1% on Wednesday.
But Britain’s FTSE 100 (^FTSE) and France’s CAC 40 (^FCHI) opened close to flat, and were trading 0.4% and 0.2% lower by mid-morning in London. “Having started on Monday wide awake and made some bumper gains it feels like the FTSE 100 has hit the snooze button for the rest of the week,” said AJ Bell investment director Russ Mould.
“The latest day of destiny for investor sentiment feels like it is coming on Monday when [prime minister] Boris Johnson is set to reveal the pace at which coronavirus restrictions will be eased in England."
Asian markets had been mixed overnight. Shares in Chinese largely rose as investors returned after the Lunar New Year holiday, with the Shanghai Composite index (000001.SS) rising 0.6%.
The Dow had ended Wednesday's session at a new record high as cyclical stocks gained amid strong retail sales, while tech stocks sank and the Nasdaq had lost 0.6% in its worst day of the month so far.
A sell-off in Treasuries earlier this week also lost momentum, with 10-year yields still just below one-year highs but two-year yields at a new record low. The reflation trade amid vaccine rollouts had lured some investors away from bonds, as well as fuelling renewed inflation fears in the US and elsewhere.
UK inflation ticked slightly higher on Wednesday, with economists divided but some predicting it will breach the Bank of England's 2% target later this year.
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Meanwhile the Federal Reserve's latest meeting minutes late on Wednesday also indicated the central bank would maintain its aggressive asset purchase program and low interest rate policies. The policy will support recovery but has sparked inflation concerns alongside president Joe Biden's fiscal stimulus plans.
"This will be a complicated year for markets with investors having to work out what happens when huge forces collide," wrote Deutsche Bank analyst Jim Reid in a note on Thursday.
"Vaccines, reopenings, pent-up demand, major stimulus, huge liquidity, strong economic growth, supply bottlenecks, return to work of retail investors, and extreme valuations in some corners of the market (including the ginormous tech sector) being the main highlights. Calibration will be tough."
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