Global stock markets closed Monday after hitting a 14-month high last week as investors await testimony from Federal Reserve Chairman Jerome Powell in markets where monetary policy expectations remain strong. It turned bullish and consolidated the gain.
The MSCI World Equity Broad Index performed well as Wall Street markets were closed for the June 15 holiday. In Europe, the STOXX 600 stock index fell 0.5% in early trading. Powell is scheduled to testify before Congress on Wednesday and Thursday, after a week in which the stock market welcomed the Fed’s decision not to raise rates in June.
Expectations that the Fed will end its most aggressive rate-hiking campaign in decades have boosted global equity indices, which are dominated by U.S. tech mega-cap stocks and whose accommodative monetary policy encourages risk appetite. tend to outperform stocks when they are strengthened. Billions of dollars have been poured into big tech in recent weeks, with analysts leading a rally on the productivity potential of artificial intelligence.
“The clear AI narrative dominates the latest rally in tech stocks,” said Dan Cartridge, portfolio manager at Hawksmoor. “But a lot of it has to do with interest rate expectations,” he added, warning that if the Fed is hawkish, “we will see valuation compression again very soon.” In Europe, the pound traded near its highest level since April 2022 at $1.2814 against the dollar.
Expectations that the Bank of England will raise interest rates this week to its highest level in 15 years boosted the pound with inflation still above four times its target. Yields on two-year British government bonds, which reflect interest rate expectations, rose six basis points to near 4.94%, close to the 15-year high reached last week. UK 10-year government bonds yielded 4.4%, reflecting a possible inverted yield pattern that precedes a recession.
In Asia, Japan’s Nikkei Stock Average fell 1%, slightly down from a 30-year high. China’s blue chip stocks plunged 0.9% to Hong Kong’s Hang Seng as investors’ hopes for a strong stimulus package from the Chinese government were dashed after Friday’s cabinet meeting failed to provide specific details. The index fell 1.2%. Goldman Sachs on Sunday cut its GDP growth forecast for China this year to 5.4% from 6.0% and, like other big banks, cut growth expectations for the world’s second-largest economy.
However, the People’s Bank of China is widely expected to cut its key medium-term policy rate on Tuesday, following a similar cut in medium-term policy lending last week. Elsewhere, the dollar index fell 1.2% last week, its biggest drop in five months, after Monday’s majors-to-dollar index was little changed at 102.33. Friday’s dovish Bank of Japan meeting sent the yen lower to a seven-month low of 141.97 to the dollar, while the dovish European Central Bank’s quarter-point rate hike last week also helped the euro. helped to keep it close to €5. The week’s high was just $1,093.
In oil markets, US crude futures fell 0.9% to $71.12 a barrel, while Brent crude fell 0.6% to $76.13. The gold price remained unchanged at $1,954.39 an ounce.