World stocks cling to upbeat sentiment, dollar stalls

LONDON, April 11 (Reuters) – World shares rose on Tuesday as traders clung to hopes that interest rates will peak soon and fall later this year, even as the latest U.S. jobs data supported the case for a May hike by the Federal Reserve.

Trading was mostly slow as many markets reopened after a long holiday weekend.

European stocks rose 0.5% (.STOXX), U.S. stock futures pointed to a positive Wall Street open, and Japan’s blue-chip Nikkei rose over 1% (.N225).

Bolstering the case for global inflation to ease further this year, data showed China’s consumer inflation hit an 18-month low and the decline in factory prices accelerated in March as demand remained weak.

Investor morale in the eurozone improved in April after a surprise drop in March, a survey showed.

South Korea’s central bank kept interest rates steady for a second straight meeting on Tuesday, while the Bank of Canada is expected to keep rates unchanged when it meets on Wednesday.

Friday’s non-farm payrolls suggested labor markets remain resilient, raising expectations for a 25 basis point (bps) US interest rate hike in May. Markets are pricing in a roughly 70% chance of a May hike, having priced such a move last week as a coin toss.

“It seems that we are currently in an environment where the world is looking at a soft landing and the need not to tighten policy too much,” Nordea chief analyst Jan von Gerich said.

“The payrolls number was strong enough to suggest the economy could avoid a deeper recession, but not too strong to suggest the Fed needs to tighten much more.”

Traders are still pricing in rate cuts at the end of the year as the outlook for economic growth weakens, exacerbated by banking turmoil.

An analysis in the International Monetary Fund’s latest World Economic Outlook suggested that current high interest rates are “likely to be temporary” and predicted that once inflation is brought under control, rates in advanced economies will eventually return to pre-pandemic levels.

The International Monetary Fund’s latest global economic outlook is due later Tuesday.

US inflation data for March on Wednesday could provide the next steer for markets on the interest rate outlook.

“I don’t think the Fed should raise rates again, but the reality is they will probably do another 25bp increase,” said Guy Miller, market strategist at Zurich Insurance Group.

“The reason for that is that core inflation is still at high levels and the services sector is very robust.”

STABILITY

Investor sentiment has also been strengthened by signs that the turmoil in the banking sector is abating.

Deposits at U.S. commercial banks rose toward the end of March for the first time in about a month, showing signs of stabilizing after the two biggest bank failures since the financial crisis rocked the banking system and rattled depositors, Federal Reserve data showed on Friday.

In Europe, UBS ( UBSG.S ) shares rose just over 1% after JP Morgan raised its target price, while the Swiss parliament held an extraordinary session to discuss last month’s UBS-Credit Suisse deal.

“My feeling is that it’s not over – we’re just starting to feel the pain of these much higher interest rates. And the banks may be fine for now, but the credit risk will still affect both them and the economy,” Zurich’s Miller said, referring to recent pain in the markets.

The dollar was broadly softer, giving up some of its gains after wages. It fell 0.4% to 133 yen, after jumping 1.1% on Monday. The euro rose 0.5% to $1.091.

Bitcoin hit a fresh 10-month high of $30,438 before retreating to $30,148, after shedding recent ranges on Monday. The digital token had been stuck between around $26,500 and $29,400 for the previous three weeks.

In Asia, yields on Japanese government bonds mostly fell after new Bank of Japan chief Kazuo Ueda vowed on Monday to maintain the bank’s ultra-loose monetary policy.

The 10-year JGB yield fell to as low as 0.445%, its lowest since April 4, after hovering at 0.465% in the previous session.

Most 10-year European government bond yields rose, as markets tracked the rise in US yields after Friday’s jobs data.

However, US Treasury yields edged lower on Tuesday, with interest-sensitive two-year yields 4 basis points lower at 3.96%.

Elsewhere, oil prices gave up early gains with Brent crude futures last down 0.17% at $84.02 a barrel. U.S. WTI futures fell 0.1% to $79.63.

Reporting by Dhara Ranasinghe; additional reporting from Selena Li in Hong Kong and Junko Fujita in Tokyo; editing by Simon Cameron-Moore and Mark Heinrich

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