Stock markets supported by Wall St rally – Financial Times

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Monday 08:30 BST

What you need to know
● Stock markets firm after Wall Street rebound
● Easing US political fears support the dollar
● Treasury yields nudge higher ahead of Fed minutes
● Brent crude rallies as Opec meeting looms
● Gold pressured by firmer dollar, dipping $1 to $1,254 an ounce.
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Hot topic

Global financial markets are continuing their recovery from a patch of turbulence in the middle of last week when political turmoil in Washington cast doubt over the prospects for president Donald Trump’s pro-growth policies, such as tax cuts and infrastructure spending.

US futures suggest the S&P 500 later in New York will gain 2 points to 2,384 — leaving the Wall Street benchmark just 0.7 per cent shy of the record closing high hit a few weeks ago.

The S&P dropped 1.8 per cent last Wednesday, its worst one-day fall in eight months, when the controversy surrounding Mr Trump caused growth-focused assets and the dollar to be dumped and encouraged investors to move into supposed havens like Treasuries, gold and the Japanese yen.

The tone is currently much less febrile as Mr Trump embarks on a trip abroad and investors re-focus on the supportive back drop of a mostly improving global economy and a generally well-received corporate earnings season.

“Even though US economic growth disappointed in the first quarter, the strong performance in global earnings — US earnings-per-share saw growth of 16.5 per cent in the first quarter beating estimates — suggests that the hard economic data could play catch-up later this year. Thus, the stock market rally may not be over yet,” said Kathleen Brooks, research director at City Index.

What to watch

Market sentiment is also being helped by a bounce in the energy sector.

Oil prices rallied some 5.5 per cent last week, their best showing since early December, after Russia and Saudi Arabia said they favoured extending their production cuts beyond the initial deadline of March next year.

The rebound came ahead of this week’s Opec meeting in Vienna on Thursday, when the cartel will consider that extension.

Brent crude, the international benchmark, is up another 0.7 per cent to $53.96 a barrel on Monday, having earlier traded above $54 for the first time in a month. West Texas Intermediate, the main US contract, is gaining 0.6 per cent to $50.63.

Equities

Bourses are mostly welcoming the firm S&P futures.

London’s FTSE 100 is adding 0.3 per cent as miners gain after iron ore rose 4.7 per cent on China’s Dalian Commodity Exchange to its highest level in a little over a fortnight. Oil producers are also underpinned by the rallying crude price. The pan-European Stoxx 600 is flat.

Japan’s Topix gained 0.5 per cent, with Takata shares up by 17 per cent, their daily limit, as the troubled airbag maker continued to rally after reaching a $553m settlement with carmakers relating to flawed airbags.

Hong Kong’s Hang Seng advanced 0.9 per cent, pushed up by market heavyweight Tencent as the Chinese tech giant rose 2.8 per cent to a record high. However, mainland China’s Shanghai Composite was down 0.5 per cent as brokerages and the real estate sector were pressured by increased government regulations.

Forex

Major currencies are mostly weaker against the US dollar. The dollar index, a measure of the US currency against a basket of global peers, is up 0.1 per cent to 97.27.

It fell to a five-and-a-half-month low of 97.08 on Friday as James Bullard of the St Louis Federal Reserve said the central bank’s projected path for lifting interest rates might be “overly aggressive”.

The Japanese yen is down 0.1 per cent to ¥111.35 per dollar after trade data showed exports and imports grew in April but at a slower pace than economists had forecast.

The euro is off 0.1 per cent to $1.1190 and the UK pound is down 0.4 per cent to $1.2979 after polls over the weekend showed the governing Conservative party holding a narrower lead against Labour ahead of the election in June.

Fixed income

Government bond prices are mostly softer, nudging yields higher, as the calmer tone across markets reduces demand for perceived haven assets.

The US 2-year bond yield, which is particularly sensitive to monetary policy, is up two basis points to 1.29 per cent ahead of Wednesday’s release of the Federal Reserve’s minutes from its latest rate-setting meeting.

Last week’s market wobble caused investors to chop the probability of a Fed interest rate rise in June from a near 100 per cent certainty to about 80 per cent at one stage, according to Bloomberg calculations. It’s back to 100 again and investors will be keen to see whether the minutes contain any commentary that would shift expected Fed policy trajectory.

Ten-year Treasury yields are adding 1bp to 2.26 per cent and equivalent maturity Bunds, which at the height of the last week’s market funk fell to 0.31 per cent, are steady at 0.36 per cent.

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