GLOBAL MARKETS-World shares attempt bounce after worst week in two years

From Reuters - February 12, 2018

LONDON (Reuters) - World shares staggered higher on Monday after suffering their worst week in two years, attempting to brush off fresh rises in global bond yields while equity futures pointed to a firmer Wall Street session ahead.

A higher Friday close for New York stocks following a week of vol induced selling, lifted markets in Asia and Europe, helping MSCIs all-country index 0.5 percent while European shares were 1.5 percent higher.

Wall Streets equity volatility gauge, the VIX - the spike in which had kicked off the ructions - was at 25.5 percent shortly after opening, versus Fridays 29 percent close.

However, that is well above its long-term average around 11 percent, showing the jitters are not completely extinguished.

The continued move-up in bond yields is reinforcing that view. Ten-year Treasury yields hit new four-year highs around 2.90 percent, while German yields, the benchmark for Europe, hovered just below 0.8 percent, the 2-1/2-year high touched last week.

People are nervous after the shock of the past week but it doesnt feel like there is a crisis around the corner. But never say never, said Grant Lewis, head of research at Daiwa Capital Markets in London.

Given solid world economic growth, Lewis said the falls were more likely a wobble than a full-blown correction to the nine-year long equity bull market as bond investors priced in an improved economic outlook.

Even at 2.90 percent, 10-year Treasury yields are still low, he added.

Data from the U.S. Commodity Futures Trading Commission showed equity funds had cut long positions in S&P 500 futures, reducing exposure to a market which has fallen 8 percent fromJan. 26 record highs.

However, futures rose one percent on Monday.

(Graphic: World FX rates in 2018


While equity markets attempt to recover, the question is whether they can withstand another sharp move up in bond yields - something will be put to the test by economic data this week.


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