European stocks and bond yields climb after day of cryptocurrency turbulence

European stocks and bond yields ticked up after a bruising day for global markets as cryptocurrencies whipsawed and the US Federal Reserve’s latest minutes hinted at tighter monetary policy to come as the pandemic recovery gathers pace.

In Europe, stocks rose in morning trading, with the UK’s FTSE 100 up 0.2 per cent while the Stoxx Europe index rose 0.4 per cent on the previous day’s close. The benchmark German 10-year Bunds and UK gilt yields were also up this morning, rising 0.015 and 0.017 points respectively as tightening fears lingered.

The pound rose 0.12 per cent against the dollar, while the euro rose 0.21 per cent.

The moves suggest a return of calm after a volatile day for equities, which saw the S&P 500 index close 0.3 per cent down after falling as much as 3 per cent.

“Global risk sentiment appears to be stabilising this morning after yesterday’s crypto contagion fears drove a broad risk-off day across European and US markets, which were already on shaky ground ahead of the [Fed] minutes,” analysts at JPMorgan wrote.

Cryptocurrencies continued to face considerable volatility, after Chinese regulators signalled a potential crackdown on Wednesday ahead of launching their own digital currency. Bitcoin, which had soared past $60,000 last month, fell as much as 30 per cent to a low of $30,101 yesterday, although it clawed back most of its losses.

“Stocks and cryptocurrencies have been showing signs of froth over the past few months and were due for a pullback,” said Richard Saperstein, chief investment officer at Treasury Partners.

Other cryptocurrencies continued to struggle. Dogecoin, a joke digital currency, had lost 15 per cent of its value over the previous 24 hours. Binance Coin, a token created by one of the largest digital currency trading platforms, was down 18 per cent over the same period.

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US markets look set to fall at open, with futures on the S&P and Nasdaq indicating a 0.5 and 0.4 per cent decrease, respectively. The latest minutes from the Federal Reserve, released Wednesday night, indicated that some policymakers thought the conversations about scaling back the central bank’s $120bn in monthly bond purchases would need to begin as the pandemic recovery heats up.

Mike Feroli, JPMorgan’s chief US economist, said that while the more hawkish tone was something of a surprise, the Fed’s discussions were likely to stretch over several meetings. He does not expect tapering to start until early 2022.

JPMorgan strategists Marko Kolanovic and Mislav Matejka predicted the market would remain bullish as economies reopen, bouts of volatility are likely to continue, with inflation concerns still top of investors’ minds.

The current wave of inflation would be higher in the near term, but could last anywhere from two to 18 months, according to Gautam Khanna, senior portfolio manger at Investment Insight.

“That’s where it starts to get a little bit interesting, this uncertainty will not sit well with investors. As such, we expect bouts of volatility and potential opportunities to ‘Buy the Dips’,” he said.

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