London: World stocks rose on Monday and were on track to post their third straight month of gains, although traders remained wary that sustained high oil prices would hurt global growth.
The dollar fell to a three-month low on expectations that the uncertain outlook, including firmer oil prices driven by political unrest in the oil-producing Middle East and North Africa, would keep US monetary policy loose.
Oil prices reversed gains to trade slightly weaker, though they have gained sharply this month on concerns over supply disruption from the oil-rich region.
Copper prices extended the previous session’s 3% gains after an earthquake in top producer Chile, though benchmark US 10-year Treasuries were also in demand, sending yields to below 3.40% - their lowest in four weeks.
World equities measured by MSCI All-Country World Index added 0.3% after rising 1.1% on Friday. The global index is up 2.3% this month, on track for a third straight monthly rise.
“The question is how high it (oil price) is going and how permanent is the spike,” said Nick Nelson, equity strategist at UBS in London.
“If it’s something that it’s going to maintain itself for six months, 12-months from this, obviously it’s going to be much more damaging for the economy than it is just something happens for one or two weeks and then go back down again.”
US stock index futures were flat to up 0.1%. Japan’s Nikkei average rose 0.9%, helped by a weaker yen.
Europe’s FTSEurofirst 300 index was up 0.2%, while Ireland’s stocks slipped 0.4%.
Ireland’s main opposition party said it would start urgent talks on forming a new government in a bid to turn its landslide election win into a mandate to renegotiate a bailout deal with Europe.
According to fund tracker EPFR Global, a growing aversion to risky assets in the latest week fuelled the biggest flows to global bond funds in more three months, and turned more investors away from emerging market stocks. Yields on benchmark 10-year US Treasuries eased 1 basis point to 3.4069% on Monday after falling as low as 3.3904%.
The rotation out of emerging markets into developed markets, partly driven by inflation concerns in emerging economies, have led to outperformance in developed markets. The MSCI emerging market index has lost 4.2% this year.
But Credit Suisse’s private bank expected the fund rotation to ease in the second quarter.
“As the current level of net foreign selling has already reached the average size of foreign selling in the previous non-recession corrections, we expect to see a gradual easing of the DM versus EM rotation flows and redemption of EM and Asian equity funds in the coming months, as foreign investors appear to be getting close to capitulation point,” it said in a note.
DOLLAR DOWN, OIL STEADY
The greenback was down 0.6% against a basket of major currencies, its lowest since Nov. 9, as traders expect higher oil prices would keep US monetary policy loose.
“Rising oil prices help to widen the perceived policy divergence between the Fed and other major central banks,” said Lee Hardman, currency analyst at BTM-UFJ.
“The ECB sees rising crude as an upside risk to inflation rather than the Fed’s view that it will be negative for growth. This is increasing the risks of a near-term overshoot for the euro.” The euro was up 0.6% at $1.3862.
Brent crude dipped 0.3% after trading as high as $114.50 a barrel on Monday. U.S. crude futures were steady at below $98 a barrel, paring earlier gains.
Revolt in Libya has cut as much as three quarters of the Opec member’s output, prompting Saudi Arabia to step in and plug the supply gap to Libya’s oil buyers.
Brent crude is up more than 10% this month, heading towards its sixth straight month of rises. It touched a 29-month high of near $120 a barrel last week.
Copper rose for the third day and is up 0.5% this month, on track for its eighth month of gains.