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Global stocks strong on economic optimism

Global stocks

S&P500 futures advanced 0.25%, while Japan’s Nikkei edged up 0.1%

Global stock prices were off to a strong start while U.S. bond yields hovered near a 13-month high on Monday as investors bet U.S. economic growth will accelerate following the passing of a massive stimulus package.

U.S. S&P500 futures advanced 0.25% in early Asian trade, trading just below a record high level reached last week, while Japan’s Nikkei edged up 0.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed.

With the $1.9 trillion economic package approved, there are strong expectations of an economic recovery, which will be supporting cyclical shares, said Masahiro Ichikawa, chief strategist at Sumitomo Mitsui DS Asset Management.

The U.S. House of Representatives gave final approval to the pandemic relief bill last week, giving President Joe Biden his first major victory in office.

Some investors speculate part of $1,400 direct payments to households could find its way to stock markets, as seemed to be the case with similar direct payments made last year for coronavirus relief.

Investors also suspect the $1.9 trillion package could not only boost growth but raise inflation – to the detriment of bonds.

Rising inflation concerns could prompt the Federal Reserve to signal it will start raising rates sooner when it announces its latest economic projections at the end of Federal Open Market Committee (FOMC) meeting on Wednesday.

Following the fiscal stimulus packages it is inevitable that Fed GDP forecasts will be revised up, and some FOMC members might think rates will have to move higher sooner than they anticipated last December, wrote economists at ANZ.

The 10-year U.S. Treasuries yield stood at 1.638% in early Monday trade, after rising to as high as 1.642% on Friday, a level last seen in February last year.

On top of continued U.S. economic optimism and increased debt supply expectations after the stimulus, uncertainties about whether the Fed will extend an emergency regulatory easing in the so-called “supplementary leverage ratio” (SLR) added to the worries.

Higher U.S. bond yields saw the dollar rising against other major currencies.

The euro dropped to $1.1953 from last week’s high of $1.1990 while the dollar held firm at 109.07 yen, near nine-month high of 109.235 set last Tuesday.

The British pound fell 0.25% to $1.3934.

Bitcoin dropped to $59,691, off a record high of $61,781 hit on Saturday after Reuters reported a senior Indian government official said Delhi will propose a law banning cryptocurrencies, fining anyone in the country trading or even holding such digital assets.

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