Morning Bid: Stocks pause as bubble warnings mount

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By Mike Dolan

LONDON (Reuters) -What matters in U.S. and global markets today

By Mike Dolan, Editor-At-Large, Finance and Markets

World stocks and gold paused their latest steep rally on Thursday as a series of warnings about excessive stock valuations and overly loose policy settings reverberated through global markets.

International Monetary Fund boss Kristalina Georgieva warned about risk to the world economy from potentially large corrections in lofty stock markets, while she also noted that fiscal policies were too lax worldwide, adding “don’t get too comfortable.” The caution followed the Bank of England’s red flag earlier on Wednesday about the risk of a sharp reversal if investor moods soured on doubts about AI or Fed independence. 

And JPMorgan chief Jamie Dimon on Thursday added his voice to warnings of a risk of significant pullback in the U.S. stock market over the next year or two. “I am far more worried about that than others,” he told the BBC.  

Despite the trepidation, soundings on the AI frenzy ahead of this month’s corporate earnings season remained upbeat and the world’s largest contract chipmaker TSMC reported another forecast-beating, AI-driven jump in annual revenue of 30%.

China’s markets also returned in buoyant form from the Golden Week break and played catch-up to the global stock gains in their absence. Chinese chipmakers surged on more pressure in Washington for broader bans on exports of chip equipment to China and rare earth indexes jumped as Beijing tightened export controls of the strategic minerals.

Europe held on to Wednesday’s recovery in French markets as President Emmanuel Macron batted away speculation of another snap election and said he would appoint a new prime minister within 48 hours to end the latest political hiatus.

Back on Wall Street, there was some cooling of the week’s main moves today after fresh closing highs for the main stock indexes on Wednesday. Gold stalled at new records after surging past $4,000 earlier in the week. With official data still thin on the ground amid the U.S. government shutdown, investors took their cue from Fed minutes that nodded to further easing even as inflation worries linger. Stock futures were flat and U.S. Treasury yields nudged up a bit, however, after a mixed 10-year note auction late Wednesday and ahead of the long-bond sale later today. The dollar held much of the week’s gains, with the yen sliding through 153 for the first time since February as Japan’s next likely new prime minister Sanae Takaichi pledged to reassert government sway over the Bank of Japan.

* AI-led megacaps and chips were the clear leaders again onWednesday as the Nasdaq outperformed and the S&P 500 set anotherrecord. That mix of stretched growth leadership, a data vacuumand heavy deficit financing has stoked renewed chatter aboutfroth across assets, with some investors leaning on the comingearnings season and Fed cuts to validate elevated multiples.Breadth stayed constructive under the surface, but sectorlaggards in energy, staples and homebuilders hinted at pocketsof strain as mortgage demand slid despite lower rates. * Oil prices were little changed as investors weighed aceasefire deal in Gaza that could ease geopolitical tensions inthe Middle East against stalled peace talks in Ukraine thatcould sustain sanctions on Russia and curb its exports. Brentcrude futures nudged up 13 cents to $66.38 and U.S. was up 11cents to $62.66. * The surge in gold prices above $4,000 per ounce isspilling over into other precious metals on fears the Trumpadministration’s unorthodox economic policies will see adebasement of the U.S. currency while other currencies areundermined by lax fiscal policies around the globe. Silver,platinum and palladium are enjoying upsized gains for the yearas investors fret about a whole host of geopolitical andeconomic uncertainties. * UK assets remain in the crosshairs of global ratesvolatility, and the debate around the BoE’s balance-sheetstrategy is intensifying again. The case for easing off activegilt sales in favor of passive runoff is back on the table as away to nurse a fragile market, even as BoE speakers keep thefocus on price stability and the transmission of tight policy.With gilts tightly linked to U.S. Treasury moves, any furtherswing in dollar rates will matter as much as ThreadneedleStreet’s own guidance.

In today’s column, I look at how estimates of a record $600 trillion global wealth pile can only hold if a genuine productivity boom materializes.

Today’s Market Minute

* Oil prices dipped on Thursday as geopolitical tensions eased on news that Israel and Hamas had agreed to the first phase of a ceasefire plan to end the two-year conflict.

* French President Emmanuel Macron will appoint a new prime minister in the next 48 hours, his office said on Wednesday, adding that a majority of lawmakers were against holding a snap parliamentary election amid France’s worst crisis in decades.

* A pledge by Japan’s next likely prime minister to reassert government sway over the central bank has fanned worries about political interference in monetary policy, however, a weak yen and politics could limit any such push.

* The amount of U.S. Treasuries held at the New York Fed on behalf of global central banks has slumped to its lowest in over a decade, writes ROI markets columnist Jamie McGeever, casting renewed doubt on foreign appetite for U.S. sovereign debt and other dollar-denominated assets.

* China’s longstanding dominance of clean energy manufacturing is translating into a behemoth export business, with close to $1 trillion of related goods shipped globally since 2018. Read ROI global energy transition columnist Gavin Maguire’s latest piece.

Chart of the day

U.S. President Donald Trump’s net public approval ratings, the difference between approval and disapprovals, have been falling since the inuguration and the overall rating is a negative -18% – the latest Reuters/IPSOS opinion polls show. Despite the GDP and stock market recoveries since the Spring, the economy remains a drag on his popularity and Trump’s performance in that category gets a negative -21% – roughly where it was at midyear.       

Today’s events to watch

* Federal Reserve chair Jerome Powell, Fed board member Michelle Bowman, St. Louis Fed President Alberto Musalem, Minneapolis Fed chief Neel Kashkari and Fed Board Governor Michael Barr all speak; European Central Bank chief economist Philip Lane speaks     

* Euro group meeting in Luxembourg, with ECB President Christine Lagarde and ECB board member Piero Cipollone

* U.S. Treasury sells $22 billion of 30-year bonds

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(By Mike Dolan; Editing by Philippa Fletcher )