Equities prolong bear market bounce as inflation fears subside

MILAN / TOKYO, June 27 (Reuters) – World equities extended Monday’s rise, building on Friday’s strong Wall Street closure as off-peak oil prices helped boost sentiment and allay fears of long-term inflation.

Strong gains in the morning in Europe and a rally across Asian markets after China further eased COVID-1[ads1]9 restrictions pushed MSCI’s global equities benchmark index (.MIWD00000PUS) up for a third straight session, rising 0.5% within 0851 GMT.

Investors are hoping that oil prices plummeting from three-month highs earlier in June could ease price pressures and allow the US Federal Reserve to tighten policy less aggressively than first feared, reducing the risk of an economic recession.

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“We believe there is a greater chance of seeing oil prices fall simply due to declining demand from the US, Europe and China due to the downturn in the economy. This in turn should help reduce expectations of inflation at least until the end of this. . years, “said Jérôme Schupp, fund manager at Prime Partners in Geneva.

“The next Fed meeting in July will be quite important. We should see the Fed continue to raise interest rates, probably by 75 basis points. But more crucial will be the new message from (Fed Chairman Jerome) Powell. Maybe he will say that they are happy with the new price level, “Schupp added.

Despite the strong three-day rise that has helped the MSCI world reference distance further above the November 2020 low reached earlier this month, the index is still down more than 20% from record highs in January, a fall commonly described as a bear market .

Traders said that oversold market conditions and rebalancing of the portfolio at the end of the month also contributed to the upswing, although they expected more volatility going forward as the earnings seasons for the second quarter approached.

MSCI’s broadest index of Asia-Pacific equities (.MIAP00000PUS) rose 1.6%. Beijing said on Saturday it would allow schools to resume personal classes, and Shanghai’s top party leader declared victory over COVID-19 after the city reported zero new local cases for the first time in two months. read more

The pan-regional STOXX 600 (.STOXX) reference yielded more than 1% as easing of China restrictions increased oil stocks and miners. Meanwhile, US stock index futures increased with the S&P 500 e-mines rising by 0.6%.

Oil was volatile as the market struggled with concerns about an economic downturn versus concerns about lost Russian supplies amid sanctions over the Ukraine conflict. read more

Brent prices rose 0.2% to $ 113.36 a barrel and US West Texas Intermediate futures fell 0.1% to $ 107.52.

US 10-year government yields were just over 3% when traders removed efforts for increases next year, but still thought of aggressive tightening this year. They were up 2 basis points to 3.16%, from an 11-year high reached earlier this month.

“The market remains focused on the balance between the political response to high inflation and fears of a hard landing,” Westpac strategist Damien McColough wrote in a note.

“There will be ongoing discussions about whether long-term interest rates have reached their peak, but we do not yet expect 10-year interest rates to fall significantly or sustainably below 3%,” he added.

The dollar continued to consolidate near its lowest point since the middle of the month against major competitors, as traders reassessed the outlook for aggressive rate hikes.

The dollar index – which measures the currency against six rivals – fell 0.2% to 103.82.

Gold rose 0.7% higher to $ 1,838.8 per ounce, supported by news of some Western nations planning to officially ban metal imports from Russia before the invasion of Ukraine.

Bitcoin was flat and traded at $ 21,170.88 after falling as low as $ 17,588.88 earlier this month.

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Reporting by Danilo Masoni, Kevin Buckland and Sam Byford, editing by Mark Heinrich

Our standards: Thomson Reuters Trust Principles.

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