Stock markets rallied yesterday and the US dollar hit a two-month high against the yen, as robust economic data from the US and Germany left investors increasingly confident about the strength of the world economy.
Focus also turned to Federal Reserve chief Janet Yellen’s semi-annual testimony on monetary policy and a meeting of Canada’s central bank for the latest signals on policy from major central banks.
For now, unease about an end to an era of ultra-cheap money has given way to optimism about global growth, with Friday’s stronger-than-expected US non-farm payrolls report bolstering risk appetite. Data yesterday showed exports from Germany, Europe’s biggest economy, rose more than expected in May.
The pan-European Stoxx 600 rallied 0.4 per cent, with banks and utilities the strongest sectors. Blue-chip stock markets in London, Paris and Frankfurt climbed 0.2 to 0.5 per cent.
They followed gains in Asia, where MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3 per cent and Japan’s Nikkei gained 0.8 per cent to a one-week high, helped by weakness in the Japanese currency.
MSCI’s emerging markets benchmark posted its best day in two weeks. US stock futures were largely flat after strong gains on Wall Street on Friday.
“Stocks have opened higher at the start of this week, the dollar continues to bask in the glory of the stronger-than- expected non-farm payrolls data, and US bond yields are approaching the key 2.4 per cent level,” said Kathleen Brooks, research director with City Index in London.
“This week is shaping up to be a critical one for data releases, central bank speak and earnings releases, and it could all add up to an important director of asset prices throughout the summer months.”
The dollar rose almost 0.4 per cent to 114.29 yen a two-month peak, while the dollar index – which measures the dollar’s value against a basket of other major currencies – was a touch firmer at 96.142. The euro was softer at $1.1388.
Oil prices declined, extending losses at the end of last week on the back of high drilling activity in the US and ample supplies from Opec and non-Ooec nations.
Brent crude futures, the international benchmark for oil prices, were at $46.27 per barrel, down 50 cents, or around one per cent, from their last close.
A generally more hawkish tone from the ECB, Bank of England and Bank of Canada in the past two weeks have boosted market expectations that central bank policy is at a turning point. The US Federal Reserve has lifted rates twice this year and is seen tightening again by the end of the year.
The Bank of Japan yesterday offered its most optimistic view of the country’s regional economies in more than a decade on solid exports and private consumption.