European shares rise as traders assessed global economic outlook

European equities and Wall Street futures rose on Mondays as traders attempted to call an end to a downturn in global stocks driven by surging inflation and fears of major falling into recession.

The Stoxx Europe 600 share index added 0.6 per cent in morning trade, while London’s FTSE 100 rose 0.7 per cent. This followed a late turnround on Wall Street on Friday when the S&P 500 equity benchmark briefly entered bear market territory — defined as a 20 per cent drop from a recent peak — before rebounding to close 0.01 per cent higher.

Futures trading implied the S&P would add 0.6 per cent in early New York dealings and the technology-focused Nasdaq 100 would also rise 0.6 per cent.

“Stocks appear to have begun another material bear market rally,” Morgan Stanley strategist Michael Wilson said. “After that, we remain confident that lower prices are still ahead.”

Global equities have tumbled this year as inflation — driven by reopening from coronavirus shutdowns and Russia’s invasion of Ukraine disrupting fuel and food prices — hit multi-decade highs in many countries.

Central banks including the US Federal Reserve and the Bank of England have signaled that they will raise borrowing costs until consumer prices stabilize, hitting valuations of companies previously flattered by ultra-low interest rates.

Meanwhile, quarterly earnings from large US companies including Walmart and Target indicated consumer spending had been depressed by higher living costs.

Much of the current debate in financial markets focuses on whether the US economy, which was boosted in 2020 and 2021 by government and central bank stimulus spending, will slip in to recession.

“Our view is that we are talking about a moderation to growth rates that are trend-like,” said James Ashley, head of international market strategy at Goldman Sachs asset management.

“But we are coming out of a pandemic of the kind we haven’t seen for 100 years, war in Europe of the kind we haven’t seen for 70 years and inflation of a kind we haven’t seen for 40 years” he added. “Dealing with all three simultaneously warrants extra caution.”

The US dollar index, which measures the US currency against six others, fell 0.7 per cent as analysts queried whether a rally caused by investors selling out of other assets had gone too far.

“The market has hoarded a huge amount of dollars in recent months,” Deutsche Bank strategist George Saravelos said, “leading to a very substantial dollar overvaluation.”

The euro rose 0.5 per cent against the US currency on Monday, to purchase just over $1.06. Sterling added 0.5 per cent to just under $1.26.

The yield on the 10-year US Treasury note added 0.03 percentage points to 2.81 per cent. This key debt yield, which moves inversely to the benchmark security and underpins loan prices worldwide, stood at about 3 per cent just a week ago increased as recession jitters demand for the low-risk asset. Germany’s equivalent Bund yield rose 0.02 percentage points to 0.96 per cent.

In Asia on Monday, Hong Kong’s Hang Seng share index fell 1.2 per cent, taking its loss since early March to about 10 per cent amid stringent anti-coronavirus lockdowns in China. Mainland China’s CSI 300 traded 0.6 per cent lower, although the Nikkei 225 in Tokyo added 1 per cent.

Brent crude, the oil benchmark, rose 0.6 per cent to $113.21 a barrel.

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