Global stocks hover near 12-month highs
Monday 08:30 BST. Global stocks are near 12-month highs as risk appetite is underpinned by optimism on the US economy and a belief that central banks are minded to maintain ultra-loose monetary policy.
Government bond yields are mildly mixed, major forex pairings are muted and oil is firmer.
After Japan led the Asia-Pacific region higher, the pan-European Stoxx 600 is up 0.3 per cent as banks rally and energy stocks are lifted by Brent crude’s 0.8 per cent advance to $44.61 a barrel.
The FTSE All-World index is adding 0.4 per cent to 275.55, flirting with its best level since mid-August last year.
Bullish sentiment is supported by the sight of US index futures showing the S&P 500 will hold near its record close of 2,183.
The Wall Street barometer claimed this virgin territory after Friday’s non-farm payrolls data showed the US economy added a better-than-expected 255,000 jobs in July, soothing nerves about the economic outlook.
While the data also boosted the prospects for the Federal Reserve lifting interest rates by year-end, few investors expect the Fed to rush to act.
Analysts at DBS said the “unequivocally strong” jobs report “more than keeps” a rate rise on the table as soon as September — though the Fed will not necessarily take action next month, DBS added, given it was only June when policymakers were warning about global risks.
“But officials toned down their assessment of global risks in July and several are publicly anxious to get back on the normalisation track. Two monster payrolls reports and accelerating core inflation and wage growth will give their arguments a lot of weight,” DBS pointed out.
Analysts at Bank of America Merrill Lynch were a little more cautious, but said the strong jobs numbers would give the Fed “sufficient reason” to raise rates this year if other economic data, such as gross domestic product, hold up.
“We think the Fed will wait until December given that there are still global uncertainties on the horizon, as well as the US election at home,” BAML said.
Fixed income markets place just a 26 per cent probability that the Fed will raise official borrowing costs by 25 basis points at its September meeting. Before the jobs data that figure was 18 per cent and so the dollar and US government bond yields, which move inversely to prices, have climbed in recent days.
The 10-year Treasury yield, which hit a record low of 1.32 per cent just a month ago, is a fraction of a basis point lower on the day at 1.58 per cent. Yields on UK, German and Japanese peers are notably more meagre, as central banks remain in monetary easing mode.
The 10-year gilt yield is off 1bp at 0.66 per cent after the Bank of England last week expanded its asset purchase programme and cut borrowing costs to a record low of 0.25 per cent in order to counteract a Brexit-induced economic slowdown.
Equivalent maturity Bunds are adding 1bp to minus 0.05 per cent after data on Monday showed German factories picked up steam in June, and Japanese paper firmed by 4bp to minus 0.05 per cent amid stronger investor risk appetite.
The yen tends to weaken when traders feel more upbeat and so the Japanese unit is down 0.3 per cent to ¥102.15 per greenback, its retreat contributing to a 2.4 per cent rebound for the exporter-sensitive Nikkei 225 stock average.
Hong Kong’s Hang Seng rose 1.5 per cent and the Shanghai Composite added 0.9 per cent to reclaim the 3,000 level as investors brushed off soft trade data from Beijing.
China’s exports contracted in July in dollar-denominated terms, down 4.4 per cent year-on-year, and with imports falling a sharp 12.5 per cent. Economists’ consensus forecasts were for declines of 3.5 per cent and 7 per cent, respectively.
“Signs of stronger manufacturing activity among many of China’s key trading partners have so far failed to lift export growth. At the same time, the renewed fall in global commodity prices is dragging down import growth,” said Julian Evans-Pritchard at Capital Economics.
Gold, which fell nearly $26 on Friday as the US jobs data pushed up the buck and bond yields, is down another $2 to $1,333 an ounce.