London — Stock markets hovered near record highs on Wednesday as investors cheered the latest evidence of a sustained rebound in global economies and stronger oil prices lifted energy stocks.
The mood was less buoyant than on Tuesday, however, as traders waited for crucial US jobs data, due on Friday, to assess what the increasing evidence of a faster-than-expected economic recovery would mean for central bank policy in the US and Europe.
A strong expansion in US and European factory activity in May had lifted world shares to record highs on Tuesday.
The broad Euro Stoxx gained 0.22%, slightly below Tuesday’s record high. UK shares extended their rally, with the FTSE 100 up 0.36%, while Germany’s DAX and the French CAC 40 gained marginally.
The MSCI world equity index, which tracks shares in 49 countries, was 0.1% lower. Futures pointed to a slight fall on Wall Street at the opening.
Oil prices rallied again after closing above $70 a barrel for the first time in two years, aided by investors wagering that the economic recovery would lift energy demand and that supply would fall behind.
Mark Haefele, chief investment officer at UBS, Global Wealth Management, said vaccination rollouts would spur “a return to normal patterns of mobility, supporting energy demand”, while support for prices also came from an Opec agreement to increase production gradually.
“We see energy firms as among the main beneficiaries of the broader global reflation trend, along with financials,” Haefele said.
While broader stock markets remain close to record highs, the momentum of earlier in the year has ebbed as investors begin to worry that a stronger-than-expected rebound from Covid-19 means higher inflation and sooner-than-expected monetary policy tightening.
Economies are recovering much faster than anticipated — data on Wednesday shows Australia’s economy racing ahead last quarter as consumers and businesses spent with abandon, lifting output back above pre-pandemic levels.
That helped the Australian stock market to its latest record, but couldn’t kick the Australian dollar out of its recent range as the central bank has been stubbornly sticking to its dovish tone.
Shrugging off inflation data
Bond and currency markets were calm as traders wait on data to provide clues about the recovery’s progress.
The Aussie was down 0.3% to $0.7730. The euro slipped 0.2% to $1.2194, just shy of recent highs, as the dollar rebounded from five-month lows against its main rivals.
While investors have built sizeable short positions against the US dollar, some investors are concerned about a surprise hawkish tone from the Federal Reserve at its meeting later in June.
US Treasury 10-year rates were steady on Wednesday at 1.6113%.
German 10-year Bund yields slipped 1 basis point to 0.187% lower, but have largely shrugged off HICP data on Tuesday showing eurozone inflation rose to 2% in May — a sign that markets are confident the European Central Bank will not decide to slow the pace of its bond purchases when it meets on June 10.
“As the major developed economies continue to reopen from Covid lockdowns the focus on central bank meetings is going to intensify,” MUFG analysts said in a monthly note.
They expect the ECB to avoid signalling a slowdown in bond purchases, but say the Fed might confirm that “very initial” discussions on tapering its bond buying have begun.
Brent futures added 0.6% to $70.65/bbl and West Texas Intermediate crude added 0.56% to $68.10, despite Opec and its allies agreeing to increase output in July.
Cryptocurrencies were calm, with bitcoin rising 1% to $37,127.