Global stock markets held near record highs on Friday as mixed signals from inflation and global factory activity data boosted hopes of more interest-rate cuts from central banks.
Futures trading suggests European stocks will start the day a touch higher – the Stoxx 600 index rose 0.2 percent – while the S&P 500 in the US dropped slightly and the Nasdaq 100 dropped by 0.2 percent. Both US indices broke records in the last session.
Meanwhile, in Asia, the markets rebounded too. Japan’s Nikkei index shot up by 1.9 percent to a new all-time peak, having risen by 7.9 percent over the past month, only the third time since 1989 that it has put on such a strong rally.
Bets are growing that the United States Federal Reserve and the European Central Bank will cut interest rates in June, according to market measures. Market proxies put the odds of a cut at 76 percent for the Fed and 60 percent for the ECB, even if the global economy isn’t headed for a recession.
Florian Ielpo, the head of macro at the Geneva-based private bank Lombard Odier, observed the passing of ‘double-digit inflation,’ which, combined with a slowing in the rise in consumer prices, he hailed as evidence of a small but essential structural change in economic conditions. Recent data on US personal consumer outlays indicated the smallest annual increase in the series in three years, while inflation in the eurozone dipped to 2.6 percent in February.
But with corporate profits accounting for most of the world’s stock market action, softness in growth could be a problem. The final reading on factory surveys in Europe and Asia for July showed a continuation of manufacturing gloom. The Purchasing Managers’ Index (PMI) for the eurozone slipped below the 50 mark, bounding growth to 46.5, marking the 20th consecutive month below growth. A PMI below 50 is also a contraction that Germany’s export prowess can’t withstand. Manufacturing also contracted in the UK and Germany. The UK PMI slipped on weak orders and capex plans, while Germany’s PMI signaled recessionary pressures.
As traders began to digest mixed data from the latest purchasing managers’ index on manufacturing, much of which confirmed a slowdown in activity, raising the risk of ‘stagflation,’ investors kept government bonds within recent trading ranges. The benchmark 10-year German Bund yield remained unchanged at 2.46 percent, while the US benchmark 10-year Treasury yield fell back a notch to 4.22 percent.
On the currency markets, the dollar index remained steady, and the yen saw little respite, weakening by another 4 yen to slump to below 150 to the dollar, as uncertainty grew over the Bank of Japan’s interest rate policy.
Meanwhile, oil prices ticked as markets awaited OPEC+’s decision on supply, with Brent crude hitting $82.81 a barrel and US crude rising to $79.11.
With markets flashing deep red, the spot gold price rose 0.6 percent to $2,054.70 an ounce as investors again turned to the safe-haven asset.
Source: Naomi Rovnick and Stella Qiu, Reuters March 1, 2024
