Global stocks rose on Monday as traders scaled back expectations of how high the US central bank will lift interest rates, and after reports of Chinese aid for ailing property developers.
Futures trading suggested a positive start for Wall Street with contracts tracking the S&P 500 rising 0.8 per cent and those on the tech-focused Nasdaq 100 up 1 per cent. The S&P has fallen 19 per cent this year.
Europe’s regional Stoxx 600 share index added 1.4 per cent. A broad FTSE index of Asia Pacific shares rose 1.8 per cent after Chinese state media reported Beijing regulators were urging banks to finance developers in the wake of homeowners boycotting mortgage payments on unfinished houses.
The moves followed an upbeat session for US stocks on Friday, as strong retail sales data and a survey hinting at easing inflation expectations tempered concerns about the Federal Reserve aggressively tightening monetary conditions into an economic slowdown.
Futures markets on Monday reflected bets that the Fed would raise its main interest rate by 0.75 percentage points this month — up from a current range of 1.5 per cent to 1.75 per cent.
Last week, after data showed US consumer price inflation had hit a 40-year high of 9.1 per cent, markets briefly priced in a supersized 1 percentage point rise in the funds rate.
“The market is weak, and when you get some slightly less bad news the market enjoys a moment of relief,” said Roger Lee, head of UK equity strategy at Investec.
He cautioned, however, that high inflation and the potential for recessions in the US and Europe meant global equities could have further to fall, despite the FTSE All World share index having dropped by a fifth this year.
“I don’t think investors fully appreciate that the performance you’ve seen in equities so far this year is all to do with interest rates, it’s not to do with potential earnings downgrades as we go into a slowdown.”
Swiss investment group GAM and food delivery platform Deliveroo warned on profits on Monday. Direct Line also cut its earnings forecasts, citing inflation in used car prices for pushing up the cost of paying motorists’ claims and sending its shares 14 per cent lower.
In currency markets, the dollar index dropped 0.4 per cent as traders scaled back rate rise bets.
The euro, which fell below $1 last week for the first time in 20 years, rose 0.4 per cent to $1.013 ahead of a meeting of the European Central Bank on Thursday, at which it is expected to raise its deposit rate for the first time since 2011 to tackle record high inflation.
The yield on Italy’s 10-year bond rose 0.06 percentage points to 3.33 per cent, reflecting caution about the effect of higher borrowing costs on the eurozone’s financially weaker nations as well as upheaval in the Italian government. Bond yields rise as their prices fall.
Germany’s 10-year Bund yield, a barometer for eurozone debt costs, added 0.1 percentage points to 1.18 per cent.
US Treasury yields also moved higher, with the benchmark 10-year yield rising 0.06 percentage points to 2.99 per cent. This key debt yield, which sets loan prices globally, traded at about 3.5 per cent just over a month ago.
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