NEW YORK/MILAN (Reuters) -Global equity markets rose on Monday at the start of a big week for central bank meetings, helped by bets of fiscal stimulus in Japan and undeterred by concerns of future interest rate hikes that have tempered bonds.
Stocks on Wall Street hit record highs, led by a surging energy sector, before the benchmark S&P 500 index retreated to trade near break-even. European stocks also hit record highs following upbeat earnings reports and a surge in banking shares.
The pan-European STOXX 600 rose 0.7% to finish at a record closing high as the global mood was supported by Japan’s post-election boost and stabilizing coal prices in China.
The euro zone bank sector touched its highest level in more than two years and was the day’s best performer as bond yields surged on expectations the European Central Bank will hike rates next year. [GVD/EUR]
MSCI’s world equities index gained 0.25% as the Dow Jones Industrial Average rose 0.13%, the S&P 500 edged down 0.07% and the Nasdaq Composite advanced 0.23%.
Japan’s Nikkei closed up 2.6% after Prime Minister Fumio Kishida’s Liberal Democratic Party won an unexpected comfortable victory, raising hopes for political stability and stimulus in the term ahead.
The dollar drifted lower after posting its biggest daily rise in more than four months last Friday as hedge funds pared bearish bets before the Federal Reserve’s policy meeting this week.
Markets are calm before the storm of three central bank meetings this week, said Marc Chandler, chief market strategist at Bannockburn Global Forex. The Reserve Bank of Australia meets Tuesday, the Fed on Wednesday and the Bank of England Thursday.
“Markets are worried about a more hawkish type of tapering,” Chandler said. “The Fed could drop its characterization of inflation as being transitory, and the second thing is the markets are saying as soon as the Fed gets done with its tapering, they’re going hike rates.”
Fed Chair Jerome Powell has said tapering would be over by mid-year 2022, which has been pegged as June, but that could also mean May, Chandler said.
“The market has to be on guard for a more aggressive, hawkish view from the Fed,” he said, which means market participants won’t be anxious about taking profits on long-dollar positions.
The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.24% at 93.966.
The euro was up 0.28% at $1.1592, while the yen traded up 0.08% at $114.0900.
U.S. Treasury yields rose and German bond yieldsedged higher but trimmed earlier gains as investors retained their bets for two rate hikes from the ECB next year.
ECB President Christine Lagarde disappointed expectations of a firm pushback against the recent market pricing of two hikes next year, which are at odds with the bank’s inflation outlook.
The 10-year U.S. Treasury note rose 2.8 basis points to yield 1.5768%, while German 10-year yields slid 0.8 basis points to yield -0.107%.
“We may come out of (the) week past peak yield volatility, or at least, past peak rate hike fever,” said NatWest Markets strategist John Briggs. “A lot of the things that went parabolic and took market rate hike expectations to a boil are at least looking like they are calming a bit.”
Commodities stabilized with a further drop in Chinese coal prices pushing them 50% below last month’s record high. Oil prices reversed earlier declines with Brent crude futures last up 1% at $84.56 per barrel, helped by expectations of strong demand. [O/R]
While the Fed is the highlight of this week’s central bank meetings, policy adjustments are possible at the Bank of England and Reserve Bank of Australia.
Swaps pricing points to a better-than-even chance of the BoE hiking on Thursday, while the RBA will likely make some sort of guidance adjustment after again declining to defend its yield target on Monday.
Oil prices dropped as China’s release of gasoline and diesel reserves eased concerns over tight global supply, while investors cashed in ahead of a meeting Thursday of major crude producers that could increase future production targets.
Brent crude rose 1.1% to $84.63 a barrel, while U.S. crude rose 0.59% at $84.06 a barrel.
Spot gold gold prices rose 0.6% to $1,793.06 an ounce. Bitcoin fell 0.7% at $61,949.27.
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