Sentiment rebounded mid-Monday, with European shares turning positive and Wall Street opening narrowly higher after bond yields slipped back from earlier highs. The US 10-Year treasury yield on the cusp of 3% is on everybody’s radar. A breakout beyond 3% in treasuries is a psychological line in the sand for many institution investors allocating money between bonds and equities. In actual fact, it may just need a clear move one way or the other past 3% to remove the uncertainty and allow traders to move on.
The strength in yields put pressure on the typically highly indebted utilities sector. The FTSE 350 Utilities index dropped was worst sectorial performer on the day. Higher yield stocks were outpacing lower yield by an average of 0.55% in the last hour of trading across the FTSE 350. A higher yield environment and the prospect of rosier first quarter earnings helped push bank stocks higher. Shares of UBS dropped despite generally well-received Q1 results. This in keeping with the reaction to US bank earnings where results did not meet the lofty expectations.
The afternoon rebound in the stock market carried the FTSE 100 over its 200-day moving average for the first time since February’s correction. The 200 DMA is used by many traders to distinguish a bullish or bearish trend in the market. The ongoing downturn in the pound since the dovish utterance from the Bank of England’s Mark Carney has again helped the FTSE outperform other global equity benchmarks.
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