Global Shares Advance As Bond Markets Settle Down

With euro-area bonds back in the bull market, global stocks are advancing, supported by solid performances of the real economies of Japan, the Eurozone and the US, the more so as monetary policies are still accommodative.

Kristian Rouz — Stock markets across the world are heading for solid weekly gains as anxiety is fading in bond markets amidst the rising confidence of the European Central Bank's (ECB) stimulus programme.

European governmental bonds rose on Thursday and Friday with yields decreasing, signaling a less risky environment in the fixed-income market after several of the biggest banks claimed there's no grounds for a debt selloff. The 10-year Deutsche Bunds halted their 4-week decline, the biggest since 2012, as the bank BNP Paribas said the losing streak in fixed-income in nearly over. The French Bank, Societe Generale, said the higher yields on the depreciated fixed-income papers might trigger a buyout in euro-area bonds, erasing much of their losses eventually.

Consequently, European stock markets posted gains during Friday's trading, the pan-European FTSEurofist 300 index was 0.3% into the green at the close. The euro slid below $1.14 after the fixed-income yields inched lower, however, the common currency still posted its fifth week of gains against its major peers, a bad sign for German exporters.

European bonds are very likely to be entering a long-term bear market as most European member-states are heavily indebted, and yields might be on the ascending trend. However, as the yields rise, demand for European debt will inevitably attract capital. The question is, where the Eurobonds will eventually find the point of balance between yield value and the actual price of fixed-income benchmark, the German Bund.

The MSCI World Index was 0.2% up, showing a sign of optimism in global shares. The US Fed is now farther from implementing the second stage in their tightening of monetary policies, leaving be the supply of ultra-cheap dollar liquidity. The interest hike is likely not coming till very late this year, though still possible in September. Meanwhile, as the world's leading economy is becoming healthier, Wall Street is advancing.

The S&P 500 Index recorded its highest ever close on Thursday, up 1.08%, while the Dow edged 1.06% up.

Calmer bond markets provide some additional capital to the global economy. The total value of fixed-income markets was $45.27 trln on Thursday, twice the worth of the whole US economy. However, on April 29 the figure was higher, some $45.67 trln. Nonetheless, the current rebound is evident when compared to the May 11 figure, which stood at $45.05 trln.

In Asia-Pacific, shares climbed on Friday as well, however, mainland China is still plagued by the dismal performance of its real economy, and Beijing has not proven to be able or willing to somehow spur growth thus far. In Japan, the Nikkei 225 Index added 0.8% after several major enterprises posted improved shareholder returns, naturally pushing shares into the bull territory. The broader Topix Index of Japanese shares added 1%. Dentsu Inc., the PR company, led gains, jumping 14% on greater returns per share.

In commodities, crude prices were flat on Friday, posting weekly gains though. A weaker US dollar was the main contributor to increase in price of raw materials. Meanwhile, forecasts suggest the US oil output might start shrinking soon, leading to bets on crude futures. Metals are also near this year's highs as copper gained for a second week in London.