Global stocks drifted on Monday, consolidating recent gains after reaching a 14-month high the previous week. Investors were eagerly anticipating testimony from U.S. Federal Reserve Chair Jerome Powell in a market heavily influenced by monetary policy speculations.
The impact of inflation includes eroding purchasing power, higher production costs, and potential challenges for businesses and consumers in managing their finances effectively.
The MSCI’s comprehensive measure of global stocks, the MIWD00000PUS, remained steady while Wall Street remained closed due to the Juneteenth holiday.
In early trading, the Stoxx 600 share index in Europe experienced a 0.5% decline.
Following a week where the stock market reacted positively to the Fed’s decision to refrain from increasing interest rates in June, Powell is scheduled to deliver congressional testimony on Wednesday and Thursday.
The expectation that the Fed will conclude its aggressive rate increase campaign, which has been ongoing for decades, is contributing to the rise of global stock indices, particularly those dominated by U.S. tech giants.
These tech companies tend to perform well when risk appetite is fueled by accommodative monetary policies.
Recent weeks have seen substantial investments flowing into major tech firms, with analysts pointing to the rally’s association with the potential of artificial intelligence to enhance productivity.
Dan Cartridge, a portfolio manager at Hawksmoor, noted that the surge in tech stocks is largely attributed to the prominence of AI.
However, he cautioned that interest rate expectations also play a significant role and warned of potential valuation compression if the Fed remains hawkish.
Meanwhile, the British pound traded near its highest level against the U.S. dollar since April 2022, reaching $1.2814.
The pound’s strength is bolstered by expectations that the Bank of England will raise interest rates to a 15-year high due to persistently high inflation, which is currently running more than four times above the target rate.
Two-year British government bond yields, which reflect rate expectations, increased by 6 basis points to approximately 4.94%, approaching last week’s 15-year peak.
The 10-year British gilt yield stood at 4.4%, exhibiting an inverted yield curve pattern that can potentially precede recessions.
In Asia, Japan’s Nikkei index experienced a 1% decline, retracing from three-decade highs. Chinese blue chips fell by 0.9%, while Hong Kong’s Hang Seng index slumped by 1.2%.
These declines were driven by dashed hopes of substantial economic stimulus from Beijing, as no concrete details emerged from a cabinet meeting held on Friday.
Goldman Sachs recently revised its forecast for China’s GDP growth this year to 5.4% from 6.0%, aligning with other major banks that have downgraded growth expectations for the world’s second-largest economy.
However, the People’s Bank of China is widely anticipated to reduce its benchmark loan prime interest rates on Tuesday, following a similar reduction in medium-term policy loans last week.
In other developments, the dollar index showed minimal movement against major peers, standing at 102.33 on Monday after experiencing a 1.2% decline the previous week, marking its largest drop in five months.
The yen was weakened by the dovish Bank of Japan meeting held on Friday, reaching a seven-month low of 141.97 per dollar.
Conversely, the euro was supported by the hawkish European Central Bank, which raised rates by a quarter point last week, enabling it to remain close to a five-week high of $1.093.
In the oil market, U.S. crude futures decreased by 0.9% to $71.12 per barrel, while Brent crude declined by 0.6% to $76.13.
Gold prices remained unchanged at $1,954.39 per ounce.
Despite the current market uncertainty, analysts anticipate continued volatility as investors closely monitor the outcome of global economic indicators and central bank actions to inform their investment strategies.
