Global stocks firm, but mood remains cautious

London — European shares opened higher on Tuesday, recovering slightly from last week’s 17-month lows as the sell-off paused, but major central banks’ rate hike plans and global recession risks kept investors cautious.

World stocks have edged higher so far this week after tumbling to their lowest since November 2020 last week when expectations for central bank policy tightening to combat high inflation prompted investors to ditch risky assets.

At 7.50am GMT on Monday, the MSCI world equity index, which tracks shares in 50 countries, was up 0.5%. Europe’s Stoxx 600 was 1% higher and London’s FTSE 100 was 0.6% firmer.

Still, analysts expect the bounce to be short-lived. Timothy Graf, head of macro strategy for EMEA at State Street Global Markets, said the move higher was probably a result of markets being oversold in recent weeks and relief that event risks, such as the Bank of Japan and Swiss National Bank meetings, have passed.

“I think it’s a pause in what is still a trend where you have this rising probability of slowing growth, high inflation — stagflation potentially — outcome,” he said. “Equity markets and the earnings prospects for corporates I don’t think have really taken that on board.”

Earlier in the session, Reserve Bank of Australia’s governor Philip Lowe signalled more rate hikes and said inflation was expected to reach 7% by the end of the year.

Germany’s BDI industry association slashed its economic forecast for 2022 and said that a halt in Russian gas deliveries would make recession in the country inevitable.

European bond yields rose, with the benchmark 10-year German yield up 8 basis points on the day at 1.736% as the prices of the notes fell.

The US 10-year yield was at 3.2882%, down from last week’s peak of 3.495% — its highest since 2011 — which came the same day the Fed raised interest rates by 75 basis points.

In currency markets, the euro was up 0.5% at $1.0561, while the dollar index was down 0.4% on the day at 104.07. The yen, which has fallen sharply in recent months, was steady at around $135.19.

Japan’s prime minister Fumio Kishida said the central bank should maintain its ultra-loose monetary policy, keeping it an outlier among other major central banks.

Oil prices rose as investors focused on tight supplies of crude and fuel products. Brent crude futures were up 1.1% at $115.38 a barrel, while West Texas Intermediate was 1.9% firmer at $111.63.

Gold was little changed at about $1,838 an ounce.

Bitcoin was at around $21,000, having stabilised somewhat since it plunged to as low as $17,592.78 at the weekend. Cryptocurrencies have increasingly become a metric of risk appetite.

Reuters