LONDON, April 11 (Reuters) – Global stock markets rose on Tuesday as traders hoped that interest rates would soon peak and fall later this year, even as the latest U.S. jobs data supported the Federal Reserve’s case for a May hike.
Trade was mostly subdued as many markets reopened after a long holiday.
European shares added 0.5% (.STOXX), U.S. stock futures pointed to a positive Wall Street open and Japan’s blue-chip Nikkei rallied more than 1% (.N225).
Strengthening the case for further easing of global inflation this year, the data showed China’s consumer inflation hit an 18-month low and factory gate price declines widened as demand weakened in March.
Investor sentiment in the euro zone meanwhile improved in April after a surprise decline in March, a survey showed.
South Korea’s central bank kept rates steady for a second consecutive meeting on Tuesday, while the Bank of Canada is expected to leave rates unchanged when it meets on Wednesday.
Friday’s nonfarm payrolls data suggested labor markets are resilient, boosting expectations for a 25-basis-point (bps) U.S. rate hike in May. Markets have about a 70% chance of a May high, pricing in a currency toss-like move last week.
“It looks like the world is looking at a soft landing at the moment, and there is no need to tighten policy too much,” said Jan van Gerich, chief analyst at Nordea.
“The payrolls numbers were strong enough to suggest the economy may be avoiding a deep recession, but not strong enough to suggest the Fed needs to tighten more.”
Traders are pricing in rate cuts by the end of the year as the economic growth outlook weakens, exacerbated by banking turmoil.
An analysis in the International Monetary Fund’s latest World Economic Outlook predicts that current high rates are “likely to be temporary” and that rates in advanced economies will eventually return to pre-pandemic levels if inflation is brought under control.
The International Monetary Fund’s latest global economic outlook will be released later on Tuesday.
US March inflation data on Wednesday could provide markets with the next direction on the rate outlook.
“I don’t think the central bank will raise rates again, but the reality is they will do another 25bp hike,” said Guy Miller, chief market strategist at Zurich Insurance Group.
“That’s because core inflation is still running at a high level and the services sector is very strong.”
Investor sentiment has also been boosted by signs that the turmoil in the banking sector is easing.
Deposits at U.S. commercial banks rose for the first time in about a month at the end of March, showing signs of stabilization after two major bank failures since the financial crisis rocked the banking system and left depositors reeling, Federal Reserve data showed on Friday.
In Europe, UBS ( UPSGS.G ) shares rose just 1% after JPMorgan raised its target price, while the Swiss parliament held an extraordinary session last month to discuss the UBS-Credit Suisse deal.
“My sense is that it’s not over – we’re starting to feel the pain of these high interest rates. And the banks may be OK for now, but the credit risk will still affect both them and the economy,” Zurich said. Miller notes the recent pain in the markets.
The dollar was broadly softer, giving up some of its post-wage gains. It was down 0.4% at 133 yen, after rising 1.1% on Monday. The euro rose 0.5% to $1.091.
Bitcoin touched a new 10-month high at $30,438 before pulling back to $30,148 after breaking out of recent ranges on Monday. The digital token had been stuck around $26,500 to $29,400 for the previous three weeks.
In Asia, Japanese government bonds were mostly lower after new Bank of Japan Governor Kazuo Ude pledged on Monday to maintain the bank’s ultra-loose monetary policy.
The 10-year JGB yield fell to 0.445%, the lowest since April 4, after 0.465% in the previous session.
Most 10-year European government bond yields rose as markets caught up with a rise in U.S. yields following Friday’s jobs data.
US Treasury yields fell on Tuesday, however, with the rate-sensitive two-year yield down 4 bps to 3.96%.
Elsewhere, oil prices gave up early gains with Brent crude futures last down 0.17% at $84.02 a barrel. US WTI futures were down 0.1% at $79.63.
Statement by Dhara Ranasinghe; Additional reporting by Selena Li in Hong Kong and Junko Fujita in Tokyo; Editing by Simon Cameron-Moore and Mark Heinrich
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