Stocks near highs on recovery bets as oil extends rally above $70

LONDON (Reuters) – Stock markets hovered near record highs on Wednesday as investors cheered the latest evidence of a sustained rebound in global economies and as stronger oil prices lifted energy stocks.

FILE PHOTO: Bull and bear symbols are seen in front of the German stock exchange (Deutsche Boerse) in Frankfurt, Germany, February 12, 2019. REUTERS/Kai Pfaffenbach/File Photo

The mood was less buoyant than on Tuesday, however, as traders waited for crucial U.S. jobs data on Friday to assess what the increasing evidence of a faster-than-expected economic recovery would mean for central bank policy in the United States and Europe.

A strong expansion in U.S. and European factory activity in May had lifted world shares to record highs on Tuesday.

The broad Euro STOXX gained 0.16% to slightly below Tuesday’s record high. British shares’ initial gains fizzled with the FTSE 100 last up 0.1%, while Germany’s DAX and the French CAC 40 gained 0.2%.

The MSCI world equity index, which tracks shares in 49 countries, bounced in and out of positive territory for the day and below Tuesday’s record high. Futures pointed to a slight fall on Wall Street at the open.

Crude oil prices rallied again after closing above $70 a barrel for the first time in two years, aided by investors wagering that the economic recovery would lift energy demand and that supply would fall behind.

Mark Haefele, chief investment officer at UBS, Global Wealth Management, said vaccination rollouts would spur “a return to normal patterns of mobility, supporting energy demand”, while support for prices also came from an OPEC showing discipline about production increases.

“We see energy firms as among the main beneficiaries of the broader global reflation trend, along with financials,” he said.

While broader stock markets remain close to record highs, the momentum of earlier in the year has ebbed as investors begin to worry a stronger-than-expected rebound from COVID-19 means higher inflation and sooner-than-expected monetary policy tightening.

Economies are recovering much faster than anticipated — data on Wednesday showed Australia’s economy racing ahead last quarter as consumers and businesses spent with abandon, lifting output back above where it was last year before the pandemic.

That helped the Australian stock market to its latest record but the Aussie dollar succumbed to selling to remain with its recent range as the central bank has been stubbornly sticking to its dovish tone.

SHRUGGING OFF INFLATION DATA

Bond and currency markets were mostly calm as traders wait on data for clues as to the global economic recovery’s progress.

The Aussie was last down 0.4% at $0.7725. The euro slipped 0.3% to $1.2173, shy of recent highs as the dollar bounced off five-month lows against major rivals.

China’s offshore yuan edged lower to 6.3871 per dollar after retreating from three-year highs as policymakers took steps to cool its advance including raising banks’ FX reserve requirements.

While investors have built sizeable short positions against the U.S. dollar more broadly, they are worried over a potential hawkish tone from the Federal Reserve at its meeting later in June, and traders are reluctant to send the greenback much lower.

Benchmark U.S. Treasury 10-year yields slipped 1 basis point on Wednesday to 1.6045%.

German benchmark 10-year Bund yields dropped 2 basis points to -0.191%.

Euro zone yields have largely shrugged off Tuesday’s data showing euro zone inflation rose to 2% in May — a sign that markets were confident the European Central Bank would not decide to slow the pace of its bond buys when it meets on June 10.

“As the major developed economies continue to reopen from COVID lockdowns, the focus on central bank meetings is going to intensify,” MUFG analysts said in a monthly outlook note.

They expect the ECB to avoid signaling a slowdown in bond purchases, but think the Fed might confirm that “very initial” discussions on tapering its bond buying have begun.

Brent futures added 1.3% to $71.16 per barrel and U.S. West Texas Intermediate crude added 1.11% to $68.47, despite the OPEC+ alliance agreeing to hike output in July.

Cryptocurrency prices were calm, with Bitcoin rising 1.2% to $37,135 .

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