Wall Street stocks waver as traders weigh stimulus progress

Wall Street’s main stock indices wavered within a tight range on Monday, steadying after large swings last week, as traders weighed the Senate’s passage of Joe Biden’s $1.9tn stimulus bill.

The blue-chip S&P 500 index gained 0.6 per cent at lunchtime in New York while the Nasdaq Composite slipped 0.2 per cent, following a turbulent spell of trading that pushed the tech-focused index down 2 per cent last week.

The recent market volatility has come as rising expectations for economic growth and inflation have sparked a sharp sell-off in US government debt. The selling continued on Monday, with the yield on the benchmark 10-year Treasury rising 0.05 percentage points to 1.6 per cent — close to its highest level in a year after starting 2021 near 0.9 per cent.

Higher borrowing costs are typically considered to be bearish for expensive portions of the equity market because they reduce the value of future cash flows. This has had a particularly sharp effect on the biggest gainers since the trough last March as many now trade at elevated levels compared with their earnings and revenues expectations.

Monday’s bond market decline comes after the Senate at the weekend passed the US president’s huge stimulus package, which includes $1,400 payments to many Americans. The measures put through by the upper chamber represented slightly more than 8 per cent of US economic output, according to Goldman Sachs.

“If it does make it through the House relatively unscathed then you may see another round of US growth upgrades and probably more concerns about yields and inflation,” said Jim Reid, research strategist at Deutsche Bank. “The battle royale will continue.”

In Europe, the region-wide Stoxx 600 index closed up 2.1 per cent, London’s FTSE 100 added 1.3 per cent and Frankfurt’s Xetra Dax climbed 3.3 per cent to a record high. But stocks in China tumbled, pushing the CSI 300 into “correction” territory — defined as a 10 per cent fall from recent highs — after the index of Shanghai and Shenzhen-listed shares closed down 3.5 per cent. Hong Kong’s Hang Seng sank 1.9 per cent.

Closely watched data from the European Central Bank showed it had added €11.9bn of bonds to its holdings under the pandemic emergency purchase programme in the week to last Wednesday — down from €12bn the previous week and below the €18.1bn weekly average since the programme started last March.

Antoine Bouvet, senior rates strategist at ING, said the data would “come as another disappointment to the market”, which has been looking for signs that the ECB would take action to combat rising bond yields.

The low headline figure, coupled with an ECB statement about the report’s artificially small number owing to temporary factors, would “confuse the market over the degree of urgency” from policymakers, he added. 

Market reaction to the PEPP data was muted as traders awaited more details on the ECB’s stance at Thursday’s monetary policy meeting. The yield on the benchmark 10-year German Bund was little changed at minus 0.28 per cent after the release.

Elsewhere, the price of commodities continued to rise after a main Saudi Arabian oil site was attacked over the weekend.

US marker West Texas Intermediate rose 1.6 per cent earlier to $67.17 a barrel, but later stabilised at $65.18. International benchmark Brent traded higher than $70 for the first time since the market tumult following the start of the pandemic, but pared back its gains to $68.37.