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World stocks hit 1-month high as traders look to earnings boost

Reuters
20 Oct 2021 00:00:00 | Update: 20 Oct 2021 02:30:20
World stocks hit 1-month high as traders look to earnings boost

World stocks climbed to a one-month high on Tuesday as a rally in technology shares and prospects of more forecast-beating corporate earnings helped counter concerns about elevated inflationary pressures.

Oil prices rose but stood below Monday’s three-year highs while the worrying trend of flattening global government bond yield curves paused, helping investors recoup some of their appetite for risky assets.

An MSCI gauge of world stocks rose 0.3 per cent to its highest levels since Sept. 17 while US stock futures gained in early London trading. European stocks advanced 0.3 per cent.

The MSCI index is up 13.8 per cent for the year but 1.76 per cent off record highs reached in early September.

“It seems that better-than-expected earnings results from big US banks last week encouraged some market participants to start this week by increasing their risk exposure, as they may have become somewhat more optimistic for the rest of the season,” said Charalambos Pissouros, head of research at JFD group.

Macroeconomic indicators also offered some relief, with weaker-than-expected growth data from China and US industrial production numbers on Monday fuelling hopes that major central banks will not rush to tighten monetary policy.

Yields on 10-year US Treasury notes were about 3 bps below Monday’s high of 1.627 per cent even after rising early Tuesday. German 10-year government bond yields increased 2 basis points but at -0.124 per cent remain below last week’s highs.

The US dollar weakened broadly against its rivals to a three-week low.

Traders said a rally in non-dollar currencies was also due to some short position-covering by hedge funds with the dollar’s weakness on Tuesday helping relieve concerns of dollar funding shortages in the cross-currency swap markets.

But concerns lurk beneath the surface, as investors price in faster interest rate rises from the Bank of England to curb growing inflationary pressures. After hawkish comments from BoE Governor Andrew Bailey over the weekend, money markets now expect an initial 0.15 per cent hike from the bank as early as next month.

A BoFA monthly fund manager survey also noted that cash levels among investors rose to a 12-month high, signalling growing caution.

“Investors are now very overweight inflation assets (i.e. commodities, banks) relative to history while at the same time very underweight assets that are vulnerable to interest rate hikes (i.e. bonds, EM, utilities),” the investment bank said on Tuesday.

Analysts said a Wall Street rally overnight that saw Apple, Facebook and Microsoft all rising was behind a strong performance in stock markets.

Sterling, the Australian dollar and the New Zealand dollar all hit one-month highs against the greenback in the Asian session, while the euro hit a two-week high.

Other risk-sensitive currencies including the Norwegian crown, which also benefits when oil prices rises, hit multi-month highs.

Brent crude rose 0.76 per cent to $84.97 a barrel, off Monday’s three-year high above $86. US crude gained 1.16 per cent to $83.4 a barrel. Brent crude prices are up by a third in two months.

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