London: World stocks rose 1% on Monday to their highest level in over a week and heading for their fourth straight day of gains as investors banked on global economic recovery to trump concerns over euro zone debt. The euro also followed up its best week this year against the dollar to rise 1%. It gained 1.6% last week after slumping to a four-year low to the greenback.
A tentative equity rally since late May has lifted world stocks by around 6% from their lows. The index was up 0.9% by 1145 GMT on Monday.
Similarly, MSCI’s main emerging market stock index has gained more than 9% since hitting a year low on 25 May. It was up 1.4% on Monday.
While markets were spooked a week back by US data showing measly growth in private sector job creation, strong economic data from China has reinforced a belief that the world recovery is indeed gaining traction.
In the United States, President Barack Obama is stepping up a push for more government spending to boost the economy via tax breaks to some businesses and more jobless benefits, adding to last year’s $863 billion stimulus.
Part of the current rally is due to this year’s sell off — world stocks are down 6% year to date and 8.2% for the second quarter — but it is also the result of a belief among many investors that the underlying economic backdrop is relatively positive and that will support corporate earnings.
David Buik, senior partner at BGC partners said the wave of risk aversion in May had left shares a bit “oversold”.
“Second quarter earnings will be somewhat better than people expect and there may be just a little bit of mileage left in the current rally,” Buik said.
The pan-European FTSEurofirst 300 was up 0.8% to a four-week high after strong euro zone industrial output rekindled optimism over the bloc’s economic outlook.
The rally was driven by banking, mining and commodity stocks, all of which tend to gain when economic sentiment is on the plus side.
A slight easing in worries over the euro zone crisis helped the banking sector, with leading banks Barclays, HSBC, Societe Generale and Deutsche Bank rising 0.9 to 2.6%.
US stock futures pointed to a higher open on Wall Street, adding to last week’s gains and tracking gains in global equities, with futures for the S&P 500, Dow Jones and Nasdaq 100 all up around 0.8%.
Earlier, Japan’s Nikkei closed up 1.8%, driven higher by exporters, again a group with a high correlation to economic growth.
“What is helping the market is the notion that a double dip recession is not a big risk,” said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin. “I think that is what the markets are latching on to.”
The euro firmed against the dollar, as hedge funds covered short positions on the single European currency.
The euro traded with gains of around 1% versus the dollar at $1.2231 after hitting the day’s high of $1.2258 on trading platform EBS.
It has risen more than 2.4% over the past five trading sessions but is still down around 15% year to date.
“The dollar is softer against the euro as steady sentiment helped risk currencies recover further,” said Geoffrey Yu, currency strategist at UBS. “Equity markets performed solidly, especially on the back of expectations that policy will remain relatively loose for an extended period globally.”
Overall, however, negative sentiment about the euro, prompted by fears for euro zone debt and the economic cost of cutting it, remained, with analysts ascribing the streak of gains to the market’s pro-risk mood.
US Treasuries fell, with benchmark 10-year note yielding 3.2804%, up 4.8 basis points on the day. Two-year yields were up 3.2 basis points at 0.7661%.
Euro zone bonds likewise weakened, with the 10-year Bund yield at 2.629%, up 6 basis points.