Stock markets extend recovery

Hong Kong's stock exchange led gainers Monday morning
AFP

Global stock markets mostly advanced on Monday, building upon last week’s advances as speculation that inflation may have peaked tempered expectations about central bank interest rate hikes.

With prices surging at a pace not seen in a generation, central banks have been forced to lift borrowing costs and wind back their ultra-loose monetary policies in recent months, sending a chill across trading floors.

But a string of weak data has led many investors to believe that inflation may have plateaued or is about to, giving room for banks to be less hawkish.

The prospect that rates will not go as high as initially expected helped send Wall Street stocks higher Friday, with the S&P 500 and Nasdaq ending up more than three percent.

Asia continued the rally on Monday while London and Frankfurt closed higher and Wall Street edged up nearing midday. Paris closed lower.

Hong Kong led gainers, climbing more than two percent thanks to a strong performance in Chinese tech firms.

Indications that China’s crackdown on the sector could be coming to an end added to the upbeat mood in the city.

“Market conviction that perhaps the Fed won’t now hike rates as aggressively as previously feared and/or that rate cuts before the end of 2023 are now an even more realistic prospect… have had a big hand” in boosting sentiment, said National Australia Bank’s Ray Attrill.

While Fed chiefs continue to flag further big interest rate hikes in the pipeline, expectations for a prolonged period of increases have waned, which has in turn taken some heat out of the dollar.

Market analyst Patrick O’Hare at Briefing.com said the question going forward is: “can the market look past a weakening fundamental situation that includes higher interest rates, persistently high inflation, and slower growth?”

The strong rebounds seen last week were possible as the market was so oversold, he said, but may soon hit resistance.

“That should become increasingly apparent in coming weeks as more companies temper their full-year outlooks” as they release their second quarter earnings.

Bitcoin has also won some support, trading above $21,000 after a recent slump.

Oil prices rose after sharp falls last week.

“We appear to be seeing an interesting moment in oil where a tight market is being priced against a likely economic decline, even a recession, which could help to rebalance it,” said Craig Erlam at trading platform OANDA.

G7 action over Russia

Elsewhere, traders were keeping a close eye on the G7 summit in Germany, focused on further coordinated financial action against Russia following its invasion of Ukraine.

Among the new action being weighed by the G7 was a price cap on Russian oil imports and fresh sanctions on Russia’s defence sector, the White House said.

G7 member France urged oil producers to ramp up crude output by “exceptional” volumes owing to Russian supply constraints.

The group — comprising also Britain, Canada, Germany, Italy, Japan and the United States — kicked off their gathering Sunday by announcing plans to ban imports of Russian gold.

It was the latest in a series of sanctions aimed at punishing President Vladimir Putin for his February 24 invasion.

Key figures at around 1530 GMT

New York – Dow: UP 0.2 percent at 31,574.20 points

EURO STOXX 50: UP 0.4 percent at 3,547.66

London – FTSE 100: UP 0.7 percent at 7,258.32 (close)

Frankfurt – DAX: UP 0.5 percent at 13,186.07 (close)

Paris – CAC 40: DOWN 0.4 percent at 6,047.31 (close)

Tokyo – Nikkei 225: UP 1.4 percent at 26,871.27 (close)

Hong Kong – Hang Seng Index: UP 2.4 percent at 22,229.52 (close)

Shanghai – Composite: UP 0.9 percent at 3,379.19 (close)

Euro/dollar: UP at $1.0612 from $1.0559 Friday

Pound/dollar: UP at $1.2305 from $1.2280

Euro/pound: UP at 86.23 pence from 85.95 pence

Dollar/yen: DOWN at 135.13 yen from 135.17 yen

Brent North Sea crude: UP 1.4 percent at $114.74 per barrel

West Texas Intermediate: UP 1.5 percent at $109.28 per barrel

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