US and European equities soared on Monday after experiencing their biggest slump in two months last Friday.
The blue-chip S&P 500 and the tech-heavy Nasdaq both gained 1.1 per cent in early trading.
In Europe, the region-wide Stoxx 600 was up 1.25 per cent. Germany’s Dax rose 1.5 per cent, while the French Cac 40 gained 1.7 per cent. London’s FTSE 100 climbed 0.7 per cent.
“I suspect after a week of consolidation there’s a bit of buy-the-dip going on,” said Emmanuel Cau, head of European equity strategy at Barclays.
The euro was up 0.5 per cent, and the dollar index, which measures the greenback against a basket of six peer currencies, was down 0.4 per cent. Sterling rose 0.8 per cent as the UK and EU reached a deal on post-Brexit trading rules.
Investors continue to study releases of economic data, which have so far pointed to an overheated economy, spurring major central banks like the Federal Reserve and European Central Bank to commit to raising interest rates higher for longer.
US durable goods orders, excluding transportation, were up 0.7 per cent month on month, beating expectations of 0.2 per cent.
EU economic sentiment, published on Monday, was lower than expected, at 99.7, relative to the 102.5 consensus forecast. Consumer confidence was in line with expectations, at minus 19.
US ISM manufacturing and European flash consumer price index figures will be released later in the week.
This month has proved an uncertain time for traders, as the persistent threat of inflation forced them to price in further central bank interest rate rises. On Monday market watchers will be listening for extra insight into the banks’ thinking in speeches from Fed board member Philip Jefferson, as well as ECB executive board member Philip Lane.
“We had a big sell-off last week, so it’s not unusual to see bounces of this magnitude as the market tries to understand the data we’ve seen so far,” said Neil Shearing, group chief economist at Capital Economics. “I suspect that the ECB has been quite clear that it has more work to do, but for the Federal Reserve the key questions are how far rates have to be increased, and how long will they keep them there.”
Markets last week reacted swiftly and decisively to better than expected economic data, after core monthly personal consumption expenditure — the Fed’s preferred measure of inflation — rose above expectations in January. Prices increased 0.6 per cent month on month and 4.7 per cent year on year — the latter substantially more than the average forecasts of a 4.3 per cent rise.
US 10-year Treasury yields fell 0.03 percentage points to 3.91 per cent, while two-year contracts, which are more sensitive to monetary policy, fell 0.01 percentage points to 4.8 per cent. “January was the best January for the Global Bond Aggregate index this century whereas February so far is on course to be the worst February over the same period,” said analysts at Deutsche Bank.
Yields on 10-year German Bunds were up 0.05 at 2.58 per cent.
Hong Kong’s Hang Seng index fell 0.3 per cent while China’s CSI 300 lost 0.4 per cent.
Brent crude was down 1.3 per cent to $82.10, while WTI, the US equivalent, fell 1.3 per cent to $75.32
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