Reuters - World share indexes held near record highs Monday while U.S. bond yields flirted with three-month lows as investors expect the Federal Reserve to stick to its dovish mantra later this week.
Japan's Nikkei rose 0.7% while MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.2%. Activity was limited with the region's largest markets - China, Hong Kong and Australia - closed for a holiday.
Markets were basking in the prospect of a broadening economic recovery from the coronavirus pandemic and anticipation of continuity in accommodative monetary policy from the U.S. Federal Reserve. Oil prices are at multiyear highs.
The MSCI world equity index, the U.S. S&P 500 and the pan-regional STOXX Europe 600 index all closed at record highs Friday. Eurostoxx 50 futures rose 0.2% Monday. S&P 500 futures nudged up 0.1%
U.S. inflation data Thursday exceeded market expectations. Factory prices in China rose. Both of which investors appeared to regard as temporary or manageable.
"Strip used cars, hotels and other leisure-related reopening plays out of the (U.S.) consumer price index and I am not sure the inflation outlook is the end of days many are predicting," said OANDA analyst Jeffrey Halley said Monday.
"Yes, PPIs are racing higher, but will that be reflected in higher consumer goods prices from China? I am not so sure on past experience...the honest answer is that we just don't know yet. Certainly, that's what the U.S. bond market is saying to us."
Ample funds are finding their way to bonds, where the yield on 10-year U.S. Treasurys stood at 1.4602% ahead of the Federal Reserve's policy meeting this week, having fallen to a three-month low of 1.428% Friday.
"It is becoming painful for bond bears and I bet the 10-year yield will fall to 1.25% or even 1%," said Akira Takei, fund manager at Asset Management One, noting that the U.S. economic recovery is likely to slow in coming months.
Speculators are also building up long positions in U.S. debt, with their net long positions in U.S. bond futures hitting the highest level since October 2017, U.S. financial watchdog data showed.
Many investors expect the Federal Reserve to repeat its dovish view at its two-day meeting from Tuesday.
While some Fed board members have said the central bank should start discussing tapering its bond buying, most investors think a majority of policymakers still prefer to wait a bit more.
"There will probably be no surprise from the Federal Reserve this week," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "But in the longer term, there's a clear risk of the Federal Reserve's stimulus becoming excessive."
In the currency market, the euro has lost steam after the European Central Bank last week showed no willingness to reduce its stimulus either.
The euro traded at $1.2099, having fallen to a one-month low of $1.2093 Friday.
The yen was even at 109.72 yen.
The British pound changed hands at $1.4108, near the lower end of its trading range over the past month, ahead of British Prime Minister Boris Johnson's announcement Monday on whether its planned lifting of coronavirus restrictions can go ahead as scheduled June 21.
British tabloid The Sun Friday reported Johnson is set to delay lockdown lifting to July 19.
Meantime, oil prices held at multiyear highs on an improved outlook for worldwide fuel demand. Brent crude futures inched up 0.5% to $73.07 per barrel, their highest since May 2019. U.S. crude futures added 0.5% to $71.32 per barrel, their highest since October 2018.
Bitcoin held on to gains won on the weekend when Elon Musk flagged Tesla's possible resumption of transactions using the token. It last bought $39.267.
