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Global shares on track to rise for first time in six sessions
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Euro zone yields jump on shifting rate outlook
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Gold dips as safe-haven buying dries up
By Chris Prentice and Amanda Cooper
NEW YORK/LONDON, March 14 (Reuters) - Global shares turned higher on Tuesday, stemming a five-session rout after key U.S. data met expectations and bolstered bets of a smaller interest rate hike by the Federal Reserve at its next meeting.
Euro zone yields jumped amid a shifting rate outlook, with markets betting central banks would soften their policy stance as they assess financial stability risks. Gold prices dipped.
Data showed the U.S. Consumer Price Index (CPI) rose 0.4% in February versus 0.5% a month earlier. On a yearly basis, it rose 6.0% last month, compared with 6.4% in the previous month.
U.S. Treasury yields moderately extended gains following the inflation data, indicating some expectation the Fed could continue to raise rates but at a gradual pace.
The MSCI All-World index reversed earlier losses, and was up 1% by 10:48 a.m. EDT (1448 GMT), on track to gain for the first in six sessions.
The Dow Jones Industrial Average rose 419.87 points, or 1.32%, to 32,239.01, the gained 71.32 points, or 1.85%, to 3,927.08 and the gained 240.82 points, or 2.12%, to 11,425.84.
European shares snapped a two-day plunge, jumping 1.57%.
As recently as a week ago, investors were just recovering from a reality-check that prompted many to assume rates around the world were likely to head much higher and stay there for longer than previously expected.
In under a week, three U.S. banks have collapsed. It has been the failure of technology-sector lender Silicon Valley Bank (SVB) that has rattled investor confidence and triggered a rush into safe-haven assets like bonds and gold.
Moody’s Investors Service on Tuesday said it had changed its outlook on the U.S. banking system to negative to "reflect the rapid deterioration in the operating environment".
Banking stocks around the world have shed hundreds of billions of dollars in value in a matter of days, while the government bond market has seen one of its biggest rallies in decades.
The yield on benchmark 10-year Treasury notes rose to 3.6663% compared with its U.S. close of 3.515% on Monday.
The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 4.3571% compared with a U.S. close of 4.03%, but was still at levels not seen for six months before Monday's largest one-day drop since 1987.
"The Federal Reserve is going to have to pick its poison -tolerate some inflation for a bit to see if its current series of rate hikes takes hold and pause or keep hiking and deal with the financial instability caused by their own policy decisions," Jamie Cox, Managing Partner for Harris Financial Group in Richmond, Virginia, said following the CPI data.
Many have drawn parallels to the 2008 financial crisis, when indicators of financial market stress shot up and equities crumbled. But Societe Generale chief currency strategist Kit Juckes said the current situation was far more like the U.S. savings and loans crisis of the 1980s, in which hundreds of smaller banks folded when the Federal Reserve jacked up interest rates to control inflation.
SVB, which was the 16th biggest U.S. bank at the end of last year, is the largest lender to fail since 2008. Specifics of the tech-focused bank's abrupt collapse are still something of a jumble, but the sharp rise in Fed rates in the last year, which tightened financial conditions in the startup space in which it was a notable player, seemed front and centre.
"I don't think this is a systemic global banking issue. If it's an issue, it's an issue of a smaller but less-regulated bank that has been growing very fast on the back of being less regulated in a stable environment that has turned nasty," Juckes said.
Overnight the VIX volatility index, nicknamed Wall Street's "fear gauge", neared six-month highs and other indicators of market stress showed early signs of strain. An index of bond market volatility - the ICE BofA MOVE index - had hit a 14-year high by Monday's close.
Yields on government bonds from the U.S. to Germany and Japan have dived in the last week. German two-year yields, which fell by the most at least since reunification in 1990, while Japanese yields have fallen by the most in decades.
Elsewhere, the U.S. dollar benchmark gained after seeing a large decline over the last week amid the dramatic re-pricing of U.S. rate expectations.
Gold's safe-haven rally dried up on Tuesday in the face of higher Treasury yields. Spot gold was down 0.37%. U.S. gold futures also dropped.
Oil prices fell more than $2 a barrel. The global benchmark last down about 1%.
