Tuesday, December 31 11:53:29
World stocks were ending 2013 close to six-year peaks today and benchmark bond yields were poised for their first annual rise since 2009 as investors celebrated a pick-up in global growth with expectations of more to come.
Thanks to ultra-easy monetary policies and an improving economic outlook, equities have enjoyed a vintage year in 2013. Wall Street was on track for its best year since 1997 with a 29 percent gain, while Japan's Nikkei ended up 56.7 percent and European shares gained 16 percent.
MSCI's all-country world equity index was flat at 407.42 points on Tuesday, having hit its highest since late 2007 at 407.65 on Monday.
The FTSEurofirst 300 index of top European shares was up 0.13 percent at 1,313.52 points, on course for its best year since 2009.
Assets favoured by investors in economic downturns took a beating in 2013, with top-rated U.S. and German bond yields trading near the highest in around two years and gold limping towards its worst annual performance in three decades.
With bets that the economic recovery will continue even as the U.S. central bank steadily trims its bond-buying stimulus and that the euro zone will take more steps towards overcoming its debt crisis, investors look for more of the same in 2014.
"There is almost a complacency about next year and how well it could go," said Hans Peterson, head of asset allocation at SEB investment management. "There is still abundant liquidity even if the Fed started to taper and I think that is still the main theme ... Everything looks nice and easy right now."
Reuters polls show European stocks are expected to hit new highs in 2014, while Chinese, U.S. and other major stock markets are also seen posting solid gains.
Gold is expected to remain depressed, while benchmark bond yields are seen rising only slightly, despite investors' preference for riskier assets, the polls show.
Analysts do not foresee a sharp bond sell-off because inflation in major economies is expected to remain stubbornly low, while the European Central Bank and the Federal Reserve have pledged to keep interest rates low for a prolonged period.
While staying overweight in equities, Didier Duret, chief investment officer at ABN AMRO private banking, said 2014 "will be a good opportunity to ... buy some good quality bonds as yields pick up above 3 percent in the U.S. and above 2 percent in Germany."
The yield on the U.S. 10-year Treasury note, which sets the standard for global borrowing costs, has risen to almost 3 percent from 1.75 percent at the start of the year, but it is seen rising to only 3.35 percent in 2014.
Emerging markets have been a noted exception to the rally in equities. MSCI's EM Index fell 5 percent in 2013 on worries that cuts in global monetary stimulus could expose economic imbalances and as funds return to the rich world.
The euro is set to end 2013 close to its highest level in two years against the dollar, but a Reuters poll shows it is expected to reverse its upward trend next year as the continued soft stance of the ECB contrasts with the Fed's.
On Tuesday, the single currency was steady at $1.3790 to be up more than 4 percent for the year.
The easing of the euro zone crisis and signs of a pick-up in economic activity even in the bloc's weakest members have offered strong support to the euro and brought Italian and Spanish debt yields to just over half their crisis peaks.
In recent days, a rise in money market rates due to thin year-end liquidity has given the single currency extra impetus, but there are some expectations the ECB may react with new long-term liquidity injections into the banking system if that continues in 2014.
"Diminishing euro zone market liquidity, a steeper yield curve and a stronger euro will do little to resolve the ECB's deflationary credit crunch dilemma," said Lena Komileva, managing director at G+ Economics, in a note.
"It would be too soon to expect that the ECB will respond with renewed liquidity easing at its January 2014 meeting, but it is clear that conditions warrant close monitoring and readiness for swift action."
The euro was quoted at 144.71 yen, down 0.3 percent from late U.S. trade, after having set a five-year high of 145.67 yen last Friday.