US equities will drive market volatility and gains

Significance

The combination of more COVID-19 cases in parts of the United States and unprecedented monetary and fiscal stimulus is straining the dollar. In parallel, the euro is benefiting from a push for closer euro-area integration. Nevertheless, the US MSCI equity index has risen by 6.3% this year, with the tech sub-index gaining 25%. Europe’s MSCI equity index is down 7.4%.

Impacts

• ‘Big Tech’ accounts for 40% of the market capitalisation of the S&P 500 equity index and looks set to continue powering the equity rally.
• The world stock of negative-yielding sovereign and corporate bonds has almost doubled from end-February to over USD15tn; it may rise more.
• The euro reached its highest level to the dollar in over two years this month; Europe’s stimulus package should help it maintain momentum.
• Dollars make up nearly two-thirds of the world stock of foreign exchange reserves; this share will fall very gradually, over years.