World markets upbeat as economies start to recover

London — European stocks clawed their way higher on Monday as world markets began the week in a relatively upbeat mood following further signs last week that economies are recovering rapidly.

The start to the week was relatively quiet, however, as investors refrained from taking on large positions ahead of a two-day US  Federal Reserve meeting beginning on Tuesday and quarterly GDP numbers for the US.

But the general sentiment remained bullish with Wall Street hitting another intraday record-high on Friday and European shares not far off record highs in early Monday trading.

The broader Euro Stoxx 600 gained 0.23% while Germany’s DAX 30 rose 0.22%. Britain’s FTSE 100 climbed 0.21%.

Asian shares also rallied with MSCI’s broadest index of Asia-Pacific shares excluding Japan reaching its highest since March 18, despite a late sell-off in Chinese shares.

Wall Street futures pointed to a slightly weaker open.

The MSCI world equity index, which tracks shares in 49 countries, rose 0.2%.

Stocks are basking in a huge rally — the MSCI world index has suffered only three down months in the past 12 and is up nearly 5% this month and 9% for the year as investors bet on a rapid post-pandemic economic rebound turbocharged by vast government and central bank stimulus.

Analysts, however, say stocks look a little too confident and that the rally will run into hurdles after setting such a lightning pace and with so much of the recovery and fiscal stimulus splurge already priced in.

“The real crux of the issue, however, is what’s in the price. The year-to-date rally has increasingly eliminated upside to our targets,” noted Andrew Sheets, a strategist at Morgan Stanley. “Across four major global equity markets (the US, Europe, Japan and emerging markets), only Japan is currently below our end-2021 strategy forecast.”

Bolster confidence

Still, recent data pointing to a solid global economic recovery has only served to bolster confidence. Strong corporate earnings and the continued rollout of Covid-19 vaccinations in developed economies have also supported sentiment.

Early April manufacturing activity indicators out last week pointed to a robust start to the second quarter with data hitting record highs in the US and signaling an end to Europe’s double-dip recession.

First-quarter US GDP data due later in the week is likely to show activity probably returned to pre-pandemic levels, analysts said.

“We estimate that the economy will close the output gap and rise above potential in the second half of this year,” ANZ economists wrote in a morning note, suggesting more upside for shares.

“[Europe] cannot match this, but as 2021 progresses into 2022, the growth differential to the US will narrow,” they added.

In bond markets, government debt yields rose as investors dumped safer assets. The US 10-year treasury yield rose one basis point to 1.5773%, but that is some way off the 1.7% levels hit earlier this month when fears about a spike in inflation rattled markets.

In currencies, the dollar — which had benefited from rising US treasury yields — fell against a basket of currencies to its weakest since early March — another sign of the bullish mood of global investors this month.

Turkey’s lira edged lower, adding to a recent slide and nearing an all-time low as a chill settled on relations with the US and after the new central bank chief signaled that rate hikes would harm the economy.

In commodities, US crude oil fell 57c to $61.57 per barrel and Brent eased 57c to $65.64. Gold climbed 0.1% to $1,779 an ounce.

Reuters