LONDON – World stocks and bonds had a second day of big gains on Wednesday, lifted by healthy U.S. data, moves by China to calm banking sector fears and supportive signals from Europe’s central banks.
All combined to soothe nerves about plans for a reduction in U.S. stimulus that have prompted large sell offs over the past few weeks.
Gold and silver, however, both slumped to near three-year lows as investors continued to dump assets used as a safety net in case central bank money printing went wrong or fuelled a spike in inflation.
Markets from safe-haven U.S. Treasuries to riskier stocks and emerging market assets have dropped on worries about the impact of an end to the U.S. Federal Reserve’s support program, and as signs emerged of a credit crunch in China.
After both the U.S. and Asia’s main share and bond markets had risen overnight, Europe’s investors shook off a shaky start to send the FTSEurofirst 300 (.FTEU3) index of top shares up more than 1 percent for a second day running.
Bond markets also continued to claw back ground although investors remained wary that the rebound could give way as markets take time to get used to the new environment.
“At this point in time, having seen a incredibly violent selloff in the treasury markets that took everything with it, there is a certain amount of settling back going on,” said Kit Juckes, a market strategist at Societe Generale in London.
“I’m not sure we are done with position adjustment yet though. We are not even done with month-end (adjustments) properly, so I wouldn’t declare this as anything more than things are looking a little bit quieter.”
Precious metals were not looking quieter, however. Gold fell 2.3 percent to $1,229 an ounce and silver dropped 4 percent to leave both at their lowest levels since September 2010.
Data on Tuesday showed U.S. consumer confidence jumped in June to its highest level in more than five years, supporting the view that the Fed will press ahead with plans to reduce its $85 billion a month support program later this year.
“It seems as though the momentum is increasing in the selloff (in gold),” said Viktor Nossek, head of research at Boost ETP, an exchange traded products provider.
“The case for safe havens assets simply isn’t there” he added. “The stock market has recovered, indicating people see further stability ahead especially after the signals from the Chinese authorities that they won’t allow a complete meltdown in the money markets.”
After more than a year of steady gains in stocks and bonds, the Fed’s shift of position last week has sparked heavy volatility across asset classes.
As new data showed Europe’s economy remains in the doldrums, the region’s policymakers were again out in force to try and calm any market jitters.
Both the European Central Bank and Bank of England said on Tuesday that, unlike the Fed, they remained in full support mode.
ECB head Mario Draghi reiterated the message again in Paris on Wednesday adding he and his colleagues would look “with great attention to the potential volatility consequences that financial markets have undergone in the past few weeks.
Bank for International Settlements General Manager Jaime Caruana also told Reuters in an interview the BIS was not demanding immediate action on global exiting and that the timing of an exit had to be determined by each central bank individually.
The annual report from the BIS – known as “the central banks’ central bank” – provoked a storm of response at the weekend after saying an exit from accommodative policies would only become harder over time.
Draghi’s comments helped pushed the euro to a three-week low of $1.3035 against a broadly stronger dollar (.DXY) and helped trim yields on the peripheral-economy euro zone bonds which have jumped by more than half a percent over recent weeks.
Spanish 10-year yields dropped 16 basis points to 4.88 percent while equivalent Italian yields were 14 bps lower at 4.74 percent. “The ECB is pretty dovish” a trader said.
As the plunges in gold and silver grabbed most of the attention in the commodities market, oil also remained under pressure at just over $101 a barrel and growth-attuned copper fell 1.6 near a three-year low.
“The market is still concerned about the Chinese growth outlook,” said economist Alexandra Knight at National Australia Bank in Melbourne in reference to the slide in copper.