Euro zone stocks rise, bonds fall as traders assess policy direction

European stocks extended gains on Monday, while the region’s government bonds came under fresh pressure as traders assessed how much inflationary pressures will push euro zone central banks to tighten monetary policy.

The regional Stoxx Europe 600 rose 0.8%, London’s FTSE 100 gained 0.2% and Germany’s Dax also rose 0.8%.The moves come on the heels of gains in Asian markets marketHong Kong’s Hang Seng and Japan’s Topix rose 2.1% and 1.9%, respectively.

The FTSE Global Index ended a seven-week losing streak on Friday, Driven by the best performance Since November 2020, weak economic data on Wall Street’s benchmark S&P 500 has encouraged investors to think the Federal Reserve may be slowing monetary policy tightening. U.S. markets were closed on Monday for a holiday.

Stocks rose on Monday as authorities in Beijing and Shanghai eased coronavirus restrictions, with European consumer goods companies among the top gainers in early trade. The biggest growth market was China, where European luxury goods companies were among the beneficiaries, with LVMH Group up 3.2 percent and Gucci parent Kering up 4 percent.

In the government bond market, Germany’s 10-year bond yield rose 0.09 percent to 1.04 percent as prices fell. The pressure on the debt instrument, seen as a measure of euro zone borrowing costs, comes ahead of preliminary May inflation data from Germany, which is expected to rise 8 percent year-on-year, the highest level in more than 40 years.

Economists polled by Reuters expect consumer price growth across the euro zone to hit a new high of 7.7 percent when data are released on Tuesday.

French and Italian 10-year bond yields rose 0.07 and 0.1 percentage points, respectively.

Bonds were hit by the sell-off despite ECB Chief Economist Philip Lane’s call for gradual rate hikes, with 0.25 percentage point hikes in July and September. “What we are seeing today is that it is appropriate to get out of negative interest rates by the end of the third quarter, and the process should be gradual,” he told Spanish business newspaper Cinco Días.

The ECB’s current deposit rate is minus 0.5%.

Paul Flood, multi-asset portfolio manager at Newton Investment Management, said: “The economy remains strong could lead to a further sell-off in bonds. We think inflation will peak. [towards the end of the year]leave more space [to central banks] Move forward. ”

Central banks have implemented the broadest monetary policy tightening in more than two decades, according to a report. Financial Times AnalysisDemand rebounded as global supply chains tightened to curb inflation sparked by the war in Ukraine.

Investors will also be looking for signs of cooling in the U.S. labor market when U.S. unemployment data is released on Friday.One Labour market is hot It has been the driving force behind rising prices in the world’s largest economy.

The U.S. dollar, often seen as a safe-haven asset, is up nearly 6 percent this year against its peers and is on track for a monthly decline in May. The U.S. dollar index, which measures the greenback against a basket of six currencies, fell 0.2% on Monday.

In commodities, international oil benchmark Brent rose above $120 a barrel for the first time since March as EU members continued to debate an embargo on Russian supplies.

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