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Daily Briefing: Is the bubble back?
November 22, 2017 / 8:23 AM / 25 days ago

Daily Briefing: Is the bubble back?

LONDON (Reuters) - It’s taken just nine trading days for MSCI’s all-country index of global stocks to re-capture its record high, with a resurgence of the tech sector leading the way back higher on Wall St and in Asia. The extent to which tech stocks are forming some sort of bubble has been one of the biggest themes of year-end investor meetings.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., November 20, 2017. REUTERS/Brendan McDermid

Some money managers insist hefty valuations are still far from the late 1990s dot.com rush and, unlike back then, earnings are real and brisk enough to keep the move going for some time. Others are more nervous, particularly on moves outside Wall St.

Blackrock on Wednesday warned of "bubble like" conditions in the internet sector in Hong Kong, where stocks such as Tencent have more than doubled this year. The Hang Seng index, which is up 36 percent so far in 2017, rose almost 1 percent earlier to vault the 30,000 level for the first time in 10 years.

With no fresh news driver in a Thanksgiving holiday week stateside, Wall St stock indices all hit new records again late Tuesday, with the ViX volatility gauge closing back below 10 percent for the first time in two weeks. Apart from tech stocks, rising oil prices have also helped the recovery.

The overall mood continues to reflect a synchronised and powerful economic expansion that is widely expected to continue through next year and is buoying earnings and savings everywhere. And the incoming U.S. economic data is surprising at a more positive rate than at any time in almost four years. Hong Kong aside, gains were broad-based across Asia earlier – with Shanghai, Tokyo and Seoul all adding about half a percent.  

Having brushed off the German political hiatus within hours earlier this week, German and euro-wide stocks are expected to push higher in the global slipstream. Euro/dollar was firmer in early trading, with the dollar on the back foot more broadly. Even as short-term U.S. interest rates push to their highest in 9 years, the U.S. Treasury yield curve continues to flatten to its lowest in 10 years – falling below 60 basis points this week.

Sterling was mixed, slightly firmer against dollar and off against the euro, as traders eye the UK government’s 2018 budget later on Wednesday as well as reports of feverish UK attempts to get some movement on the virtually stalled Brexit talks by the EU summit on Dec 13-14. Reports say Britain is prepared to offer as much as 40 billion euros as part of its "divorce settlement" with the EU, although movement on how it will handle the Irish border looks to be harder.

Turkey’s lira has seen little benefit from the rally across most emerging markets, setting a new record lows first and boosting expectations of further central bank action after emergency measures to tighten money market liquidity in response to lira weakness on Tuesday. How far the Turkish central bank will be allowed by government to go in raising interest rates to defend the currency is at the heart of the lira’s losses of more than 15 percent since September.

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Editing by Alison Williams

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