A fall in bond yields triggered a rise in US tech stock futures at the expense of the Dow Jones on Monday, with investors buying back into growth companies after the previous week’s volatility.
Meanwhile the Turkish lira tumbled as much as 15% against the dollar after the country’s president sacked a central bank chief for the third time in under two years.
Futures for the tech-heavy Nasdaq 100 index rose 0.69%, with the dip in bond yields making those more expensive sectors of the stock market more attractive.
The yield on the key 10-year US Treasury note fell 4.8 basis points to 1.684% after hitting a 14-month high above 1.7% last week.
Bond yields have risen sharply in recent weeks as investors demand higher returns in response to rising growth and inflation expectations.
But the increase has made fast-growing and pricey tech stocks look less attractive, leading to a dynamic in which investors sell Nasdaq companies when yields rise and buy them up again when they fall.
Policymakers from the US
soothed the bond market somewhat over the weekend, as some investors worry the central bank could cut back its support sooner than expected.
Chair Jerome Powell wrote in a Wall Street Journal article: “The recovery is far from complete, so at the Fed we will continue to provide the economy with the support that it needs for as long as it takes.”
Richmond Fed President Thomas Barkin told Bloomberg TV there were no signs yet of undesirable inflation.
Hussein Sayed, chief market strategist at FXTM, said the fallout from the Turkish central bank debacle had knocked Japanese stocks.
“While there should not be a strong link between the Turkish lira and Japanese equity markets, it is believed that retail traders in Japan hold significant leveraged long positions in the lira as a carry trade. Hence, they have to cover these positions by selling equities in local markets,” he said.
Turkey’s lira tumbled to close to a record low before recovering somewhat after President Recep Tayyip Erdogan sacked central bank governor Naci Agbal. The currency was down 9.3% on Monday to $0.126.
The firing sparked concerns that Turkey could again cut interest rates, spurring more inflationary pressure.
Lee Hardman, currency analyst at MUFG, said: “Market participants are treating it as a Turkey specific problem so far, although there are clear risks that it could begin to weigh more broadly if the situation continues to escalate in the coming weeks and months.”