Increasing confidence that the worst of the credit crisis is over boosted world stocks on Monday while inflation concerns grew with oil prices heading towards $120 a barrel.
Investors have stopped taking it for granted the United States Federal Reserve will cut interest rates later in the week, although most still expect such a move.
Oil hit a new record of $119,93 boosted by a string of bullish factors that include a British refinery strike and disruptions to Nigeria’s output that highlight the market’s anxieties over threats to supply.
It later fell back to trade around $119,10 a barrel.
”Supply-side concerns underpinned the oil price,” David Moore, a commodity strategist at the Commonwealth Bank of Australia, said in a note to clients.
Stock markets generally looked past the issue, continuing their recent rally and Wall Street looked set to open higher.
MSCI’s main world stock index was up 0,4% at mid-January levels having gained more than 4% this month.
The pan-European FTSEurofirst 300 gained 0,8% on the day and Japan’s Nikkei average hit a two-month closing high of 13 894,37, up 30,90 points or 0,2%.
Japan’s broader TOPIX index gained 1,6% or 21,84 points to 1 361,75.
”What initially seemed like a much-needed ‘spring reprieve’ has turned into a full-fledged equity/spread rally, albeit one based on many unsettling contradictions,” Lehman Brothers said on a note.
”April unfolded as the converse of the first quarter with some asset classes with vigour not seen since the beginning of the last credit cycle.”
Investors have become increasingly persuaded that the credit crisis is easing and is not likely to cause lasting damage.
UBS, for example, upgraded the global banking sector to ”neutral”, saying that with more than $191-billion of capital raised, the return to bank balance sheet stability was taking place faster than expected.
Banks were among the biggest gainers on European bourses, helped by renewed optimism for the sector after American Express posted forecast-beating results on Friday.
The recovery in sentiment, however, has been raising some thoughts that the Fed may not cut rates on Wednesday after chopping 3 percentage points off to 2,25% since mid-September in an effort to pump money into the financial system and restore investor confidence.
Futures markets are still suggesting a more than 80% probability of another 25 basis point cut, but also a near 20% chance of no change.
On foreign exchange markets, the euro was higher against the dollar, with larger gains cut back after consumer price data from five German states showed prices fell in April, suggesting easing price pressures in the euro zone’s biggest economy.
The single currency was trading around $1,5660, up 0,2%. The dollar was flat at 104,49¥ having hit a two-month high earlier in the day.
Short-term euro zone government bonds gained on the German data. The two-year Schatz yield was down three basis points at 3,836%.
The 10-year bond yield gained two basis points to 4,201%. – Reuters