World shares extended
their bounce on Monday, building on Friday's strong Wall Street close as
off-peak oil prices helped sentiment improve and temper fears of prolonged
inflation.
Strong morning gains in Europe and a rally across Asian markets after China
further eased COVID-19 restrictions drove the MSCI's benchmark for global
stocks (.MIWD00000PUS) up for a third straight session, rising 0.5% by 0851 GMT.
Investors hope the oil prices slide from three-month peaks hit earlier in June
could ease price pressures and allow the U.S. Federal Reserve to tighten policy
less aggressively than initially feared, reducing the risk of an economic
recession.
"We think there are more chances of seeing oil prices going lower simply
because of easing demand from the U.S., Europe and China due to the slowdown in
the economy. This in turn should help reduce expectations on inflation at least
for the very end of this year," said Jérôme Schupp, fund manager at Prime
Partners in Geneva.
"The next Fed meeting in July will be quite important. We should see the
Fed continue to hike rates, probably by 75 basis points. But more crucial will
be the new message from (Fed Chair Jerome) Powell. Maybe he'll say they're
happy with the new level of rates," added Schupp.
Despite the strong three-day rebound which has helped the MSCI world benchmark
distance further above the November 2020 lows hit earlier this month, the index
remains down more than 20% from its record-high close in January, a fall that
is commonly described as a bear market.
Traders said oversold market conditions and month-end portfolio rebalancing also
contributed to the bounce, although they expected more volatility ahead as the
second-quarter earnings seasons approaches.
MSCI's broadest index of Asia-Pacific shares (.MIAP00000PUS) rose 1.6%. Beijing
said on Saturday it would allow schools to resume in-person classes and
Shanghai's top party boss declared victory over COVID-19 after the city
reported zero new local cases for the first time in two months.
The pan-regional STOXX 600 (.STOXX) benchmark added more than 1% as the easing
in China restrictions boosted oil stocks and miners. Meanwhile, U.S. stock
index futures extended their gains with S&P 500 e-minis gaining around 0.6%.
Oil was volatile as the market grappled with concerns over an economic slowdown
versus worries about lost Russian supply amid sanctions over the Ukraine
conflict.
Brent prices rose 0.2% to $113.36 a barrel and U.S. West Texas Intermediate
futures dipped 0.1% at $107.52.
U.S. 10-year Treasury yields stood just above 3% as traders removed bets for
hikes next year but still pondered about aggressive tightening this year. They
were up 2 basis points at 3.16%, off an 11-year high reached earlier this month.
"The market remains focused in the trade-off between the policy response
to high inflation and fears of a hard landing," Westpac rates strategist
Damien McColough wrote in a note.
"There will be ongoing discussions as to whether long-end yields have
peaked, however, we would not yet expect 10-year yields to fall materially or
sustainably below 3%," he added.
The dollar continued to consolidate near the lowest since the middle of the
month against major peers, as traders reassessed the prospects of aggressive
rate hikes.
The dollar index - which measures the currency versus six rivals - was down
0.2% at 103.82.
Gold rose 0.7% higher to $1,838.8 per ounce, supported by news of some Western
nations planning to officially ban imports of the metal from Russia for its
invasion of Ukraine.
Bitcoin was flat, trading at $21,170.88 after falling as low as $17,588.88
earlier this month.
Source: Reuters