© Reuters. FILE PHOTO: A man walks in front of a screen displaying a chart showing the average movements of the latest Nikkei stock index outside a brokerage in Tokyo, Japan, December 30, 2020. REUTERS/Issei Kato/File Photo
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By Hugh Jones
LONDON (Reuters) – Stocks, the dollar and crude oil strengthened on Monday as investors positioned themselves for more guidance on interest rates and the economy from a series of central bank meetings that extended into next week.
The European Central Bank meets on Thursday, although it is not expected to start raising interest rates until July, when the US Federal Reserve and Bank of England rate-setters meet next week.
“There is still some doubt about whether or not inflation has peaked,” said Michael Hewson, chief market analyst at CMC Markets.
“We are in no-man’s-land at the moment in terms of peak inflation, as well as reopening China and the potential tailwinds that it could bring. Oil prices are still headwinds and therefore it is hard to get any direction,” Hewson said.
The week started with some investor appetite for risk as the MSCI All-Country Stock Index rose 0.3%, and its recent recovery from bear market territory remains largely intact.
The STOXX index of 600 European companies rose 0.8%. London’s blue-chip stocks rose 1.2%, shrugging off the news that British Prime Minister Boris Johnson will face a vote of confidence by lawmakers from the ruling Conservative Party later on Monday.
Oil prices strengthened after Saudi Arabia sharply raised its sales prices for crude in July, an indication of how tight supply is even after OPEC+ agreed to speed up production increases over the next two months. [O/R]
It rose 0.6 percent to $120.41 a barrel. It rose 0.55% to $119.53 a barrel.
Gregory Burdon, chief investment officer at Arbuthnot Latham, said investors should balance bearish factors such as inflation, higher rates, the war in Ukraine and a stronger dollar against accommodative monetary policy, despite slowing economic growth and Chinese stimulus.
“I think in balance, it’s more rewarding to take a risk in this environment than betting on risky assets,” Purdon said.
It added 1% and Nasdaq futures added 1.4%, indicating a higher open on Wall Street.
Asia shares rise
Shares in the Asia Pacific region rose 0.6%, while those in Japan rose 0.6%.
China’s blue chip stocks rose 1.9% after a survey confirmed a contraction in service sector activity in May, but the Caixin Index still improved to 41.4 from 36.2.
The sentiment was helped by comments from US Commerce Secretary Gina Raimondo that President Joe Biden has asked his team to consider the option of raising some tariffs on China.
Markets will be very alert to the US consumer price report on Friday, especially after inflation in the European Union shocked many to a record high last week.
Expectations are for a sharp rise of 0.7% in May, although the annual pace is expected to hold at 8.3% while core inflation is expected to slow slightly to 5.9%.
The higher number will only heighten expectations of a hard tightening from the Federal Reserve, with markets already pricing in half-point increases in June and July and nearly 200 basis points by the end of the year.
At Thursday’s European Central Bank meeting, President Christine Lagarde is almost certain to confirm the end of bond buying this month and the first rate hike in July, although the jury is out on whether that will be 25 or 50 basis points.
Money markets are priced at 125 basis points in increases by the end of the year, and 100 basis points in October.
The prospect of a shift in interest rates from the European Central Bank this year helped lift the euro to $10,731, away from recent lows of $1,0348, although it struggled to remove resistance around $1.0786.
The euro also hit a seven-year high against the yen at 140.39, after rising 2.9% last week, while the dollar settled at 130.78 yen after rising 2.9% last week.
ING said that the gradual revaluation of the US currency, supported by higher US interest rates, should mostly come at the expense of currencies with uncertain growth prospects such as most European currencies.
Against a basket of currencies, the dollar settled at 101.87 after rising 0.4% last week.
In commodity markets, wheat futures jumped 4% after Russia bombed the Ukrainian capital of Kyiv, dampening hopes for progress in peace talks.
Gold remained stuck at $1,852 an ounce, after holding in a tight range for the past two weeks. [GOL/]
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