Government bonds and a handful of “meme stocks” rallied on Tuesday amid otherwise calm financial markets, as investors awaited inflation data and weighed increasing US-China tensions.
The yield on the 10-year US Treasury note, the benchmark for global debt markets, fell 0.04 percentage points to 1.528 per cent, its lowest level since early March. Bond yields move inversely to prices.
Germany’s equivalent Bund yield slipped by 0.03 percentage points to minus 0.226 per cent, its lowest level in about a month.
The moves come after US president Joe Biden initiated a task force to boost the resilience of supply chains, and moved to examine new tariffs on the Chinese rare earth magnets that are used in goods including electric vehicles and smartphones.
“I think a lot of investors initially expected Biden to take a more conciliatory stance towards China than [former president Donald] Trump, but he is taking quite a tough position,” said Catherine Doyle, investment specialist at Newton Investment Management. “You’ve also got worries building up about the [new coronavirus] variants.”
US and European equities mostly drifted on Tuesday, except for a handful of meme stocks that attracted the attention of novice traders on online forums.
Shares in Clover Health, the Medicare start-up that went public through a merger with one of venture capitalist Chamath Palihapitiya’s special purpose acquisition companies in January, rallied as much as 107.8 per cent, to $24.93 each. They later fell back, closing the session at $22.15.
Still, the rally had resulted in “big red numbers for short sellers”, said Ihor Dusaniwsky, managing director at the data provider S3 Partners. Over the past 30 days, short sellers have increased their position in the stock by 24.5 per cent, as Clover Health shares have risen roughly 38 per cent.
The video game retailer GameStop, which was at the centre of a retail trading-fuelled mania earlier in the year, rose as much as 22 per cent on Tuesday, to $345, before falling back to $300 by the time the closing bell rang.
However, other meme stocks were more muted. BlackBerry and AMC closed the trading session flat. A sharp rally last week sent the cinema chain to a multiyear high of $72.62.
For the most part, traders held back from making bets because of what David Moss, co-head of global equities at BMO Global Asset Management, described as “a sense that the good news has all come out”.
Wall Street’s blue-chip S&P 500 index closed flat, just below its high achieved in early May, while the technology heavy Nasdaq Composite rose 0.3 per cent. The Europe Stoxx 600 was up 0.2 per cent, following its high reached on Monday.
Bond prices rose despite jitters over rising US inflation, which erodes the returns from fixed-interest securities such as Treasuries.
Data released on Thursday is expected to show that US consumer prices, excluding volatile food and energy costs, rose 3.5 per cent in May over the same month last year. This would represent the strongest year-on-year price increase since 1993, although Federal Reserve chair Jay Powell has maintained for months that bursts of inflation would be a temporary effect of industries reopening after pandemic-enforced shutdowns.
“Investor concern over the US inflation issue has become much less acute,” said Jim Reid, a Deutsche Bank strategist, after global bond yields climbed sharply in the first three months of this year.
In currencies on Tuesday, sterling declined 0.2 per cent against the dollar to $1.4156 as concerns mounted that rising coronavirus cases would push back the UK government’s June 21 deadline for easing lockdown curbs in England.
The euro fell 0.1 per cent against the greenback, to $1.217. The dollar index, which measures the dollar against trading partners’ currencies, gained 0.2 per cent. Bitcoin dropped 4.8 per cent, to trade at $32,789.
Brent crude, the international oil benchmark, was up 0.9 per cent at $72.36 a barrel.