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World stocks break above November 2020 lows, sterling recovers a bit

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  • Dollar falls from 20-year highs reached on Monday
  • German 10-year bond yields reached near 11-year highs
  • Oil up from Monday’s nine-month low

LONDON/HONG KONG, Sept 27 (Reuters) – World shares rebounded from 21-month lows on Tuesday and the pound rose after hitting a record low against the dollar a day earlier on British tax cut plans, as market slippages ran out.

US S&P futures jumped 0.94% after Wall Street fell deeper into a bear market on Monday, benchmark 10-year Treasury yields fell from the previous session’s 12-year high and the dollar fell from 20-year highs on a basket of currencies.

However, markets remained jittery after US central bank officials said on Monday that their priority remained to control domestic inflation. read more

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“US interest rate expectations have risen quite significantly,” said Andrew Hardy, chief investment officer at Momentum Global Investment Management, although he added that “there is a huge amount of bearishness already priced into the markets”.

Markets are pricing in a 76% probability of another 75 basis points at the next Federal Reserve meeting in November.

Central bank speakers on Tuesday include Fed Chair Jerome Powell and ECB President Christine Lagarde.

The MSCI world stock index (.MIWD00000PUS) rose 0.29% after hitting its lowest since November 2020 on Monday. European shares rose more than 1% and Britain’s FTSE (.FTSE) rose 0.6%.

Sterling collapsed to a record low of $1.0327 on Monday as the government’s tax cut plans announced on Friday came on top of massive energy subsidies.

The British currency recovered 4.6% from Tuesday’s low to $1.0801.

After the pound’s fall, the Bank of England said it would not hesitate to change interest rates and was monitoring markets “very closely”. read more

Bank of England chief economist Huw Pill will address a panel at 1100 GMT.

Lack of confidence in the government’s strategy and its funding also hit the gilts on Friday and again on Monday.

The yield on five-year gilts rose as much as 100 basis points in two trading days, although it fell from its peaks on Tuesday.

“(It’s) definitely something that’s unfolding…probably we’re just in some initial stages of seeing how the market digests that kind of information,” said Yuting Shao, macro strategist at State Street Global Markets.

“Of course the tax cut plan itself was aimed at stimulating growth, reducing household burdens, but it raises the question of what the implications are in terms of monetary policy.”

Spillover from the UK kept other assets on edge.

Bond sales in Japan pushed interest rates up to the Bank of Japan’s ceiling and led to several unplanned purchases by the central bank in response.

The German 10-year bond yield hit a new nearly 11-year high of 2.142%.

Ten-year US Treasury yields fell 3.2 bps after hitting a high on Monday of 3.933%.

MSCI’s broadest index of Asia shares outside Japan (.MIAPJ0000PUS) hit a fresh two-year low before bouncing 0.5%. Japan’s Nikkei (.N225) was up 0.5%.

The dollar index fell 0.13% to 113.72, after touching 114.58 on Monday, the strongest since May 2002.

The European single currency was up 0.24% on the day at $0.9629 after hitting a 20-year low a day ago.

Oil rose more than 1% after plunging to a nine-month low a day earlier, amid indications that producer alliance OPEC+ may adopt output cuts to avoid further price collapses.

US crude rose 1.4% to $77.70 a barrel. Brent crude rose 1.27% to $85.20 a barrel.

Gold, which hit a 2-1/2-year low on Monday, rose 0.8% to $1,634 an ounce.

Bitcoin broke above $20,000 for the first time in about a week, as cryptocurrencies bounced, along with other risk-sensitive assets. read more

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Reporting by Xie Yu; Editing by Edmund Klamann, Muralikumar Anantharaman and Raissa Kasolowsky

Our standards: Thomson Reuters Trust Principles.

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