Global stocks rally but remain on track for a sixth week of losses
Global stocks rose on Friday, but remained on track for their longest streak of weekly losses since the 2008 financial crisis, as fears over inflation and an economic slowdown continued to stalk markets.
The FTSE All World index gained 2 per cent, as Wall Street and European equity bourses rallied, but remained on course for its sixth consecutive weekly decline.
Wall Street’s benchmark S&P 500 share index, which on Thursday skirted a bear market as it nearly fell to almost a fifth below its January all-time high, rose 1.4 per cent by the New York afternoon on Friday. The technology-heavy Nasdaq Composite gained 2.7 per cent. It remained more than 25 per cent lower for the year to date.
Some investors characterised Friday’s gains as a bear market rally, referring to short periods of optimism within a longer trend of declines.
“Obviously there’s been a lot of difficult weeks and you get these sessions where the market tries to bounce back,” said Antoine Lesne, investment strategist at State Street’s SPDR exchange traded fund unit. “But I’m tempted to say we are still in bear market territory.”
Market sentiment had become “so bearishly positioned, wherever you look, that there is a good chance we see a rebound in weeks to come”, said Florian Ielpo, multi-asset portfolio manager at Lombard Odier.
“Will it be sustainable for the rest of the year? We strongly disagree with that,” he added. “There is only one way out of this inflationary period we are currently experiencing — and that is a slowdown in economic activity.”
US Federal Reserve chair Jay Powell warned on Thursday that bringing inflation down to its 2 per cent target may not be achieved without “some pain”. The Fed, whose monetary policy is followed by central banks worldwide, raised its main interest rate by 0.5 percentage points last week and is expected to increase it by the same amount in June, July and September.
Data on Wednesday showed US consumer price inflation rose at an annual pace of 8.3 per cent in April, a decline on the previous month’s rate but still at levels last seen in the early 1980s.
A short-term rally in US government bonds reversed on Friday as haven buying, driven by recession fears, reverted to traders calculating the effect of sustained inflation on fixed interest-paying securities.
The yield on the 10-year Treasury note, which moves inversely to the price of the benchmark debt security, rose 0.07 percentage points to 2.92 per cent.
US Treasuries, the world’s most important debt market, have been volatile in recent weeks as investors stayed on the sidelines and dealers found it harder to match sellers with buyers.
“All measures suggest liquidity in Treasuries markets is very constrained,” said Paul O’Connor, head of the UK-based multi-asset team at Janus Henderson. “That reflects shifts in investor psychology between rising inflation to slowing growth,” he added, “with many now questioning whether the level of rate rises that have been priced in are excessive”.
In Europe, the regional Stoxx 600 index added 2.1 per cent. Asian markets also rallied earlier in the day, with Hong Kong’s Hang Seng index gaining 2.7 per cent and Japan’s Nikkei 225 closing 2.6 per cent higher.
The dollar index, which measures the greenback against six major currencies, lost 0.2 per cent but remained close to a 20-year high. Brent crude rose 3.5 per cent to just over $111 a barrel.