World stocks static but near record highs on IMF forecasts

London — World stocks idled near record highs on Wednesday as an International Monetary Fund (IMF) forecast of the strongest global growth since the 1970s this year and steady bond and forex markets kept risk appetite buoyant.

While rising global Covid-19 case numbers and geopolitical tensions between China and Taiwan and between Russia and Ukraine ensured it was by no means a fairytale, markets certainly had a Goldilocks feel again.

Europe’s Stoxx 600 spent the morning perched just below its first record high in more than a year. MSCI’s 50-country world index was flirting with a sixth day of gains and Wall Street futures were pointing sideways.

In the bond markets, there was little sign that the benchmark government yields that drive global borrowing costs were gearing up to shoot higher again while the dollar seemed content to sit quietly at a two-week low.

Investors’ growth hopes had been bolstered on Tuesday when the IMF raised its global forecast to 6% this year from 5.5%, reflecting a rapidly brightening outlook for the US economy.

If realised, it would be the fastest the world economy has grown since 1976, albeit after the steepest annual downturn of the post-war era in 2020 when the Covid-19 pandemic brought commerce to a near standstill at times.

Purchasing manager index data on Wednesday showing a record expansion in the manufacturing sector helped eurozone businesses return to growth in March, despite a third wave of coronavirus infections continuing to hammer the services industry.

“The economy has weathered recent lockdowns far better than many had expected, thanks to resurgent manufacturing growth and signs that social-distancing and mobility restrictions are having far less of an impact on service sector businesses than seen this time last year,” said Chris Williamson, chief business economist at IHS Markit.

Overnight, MSCI’s broadest index of Asia-Pacific shares had started on a firm footing, going as high as 208.46 points, a level last seen on March 18. However, it succumbed to selling pressure and ended flat as China’s blue-chip CSI 300 index dipped 1% and Hong Kong eased 0.9%.

Geopolitical tensions in the region added to the jitters. Taiwan’s foreign minister said on Wednesday it will fight to the end if China attacks, adding that the US saw a danger that this could happen amid mounting Chinese military pressure, including aircraft carrier drills, near the island.

Other markets in the region managed to stay positive. Japan’s Nikkei closed higher; Australian shares rose 0.6%; and South Korea’s Kospi added 0.3%.

PEPP talk

Wall Street futures pointed to a virtually horizontal start for the S&P 500, Dow Jones Industrial and Nasdaq. The S&P 500 and the Dow had hit record levels on Monday, driven by a stronger-than-expected jobs report last Friday and data showing a dramatic rebound in US services industry figures.

The upcoming earnings season is expected to show S&P profit growth of 24.2% from a year earlier, according to Refinitiv data, and investors will be watching to see whether corporate results further confirm recent positive economic data.

All eyes will also be on minutes of the US Federal Reserve’s March policy meeting when they are published later.

Ten-year and five-year US treasury yields, were down at 1.6455% and 0.874% respective in Europe from as high as 1.776% on the 10-year on March 30. The five-year US treasury yield, especially, is seen as a major barometer of the faith investors have in the Fed’s message that it doesn’t expect to raise US interest rates until 2024.

Europe’s bond yields also eased, with Southern European debt markets stabilising after a sell-off the previous session and as Italy got more than €130bn worth of orders for a new 50-year bond it was selling.

The European Central Bank (ECB), meanwhile, will release monthly data on its conventional asset purchases later, and a bi-monthly breakdown of its pandemic emergency purchase programme (PEPP), which it has vowed to increase to keep borrowing costs low.

The dollar circled a two-week low of 92.340 against a basket of world currencies. The euro was flat at $1.1880, sterling was 0.2% weaker at $1.3795 and the yen was a touch lower at ¥109.92.

Most of the sizeable moves were in emerging markets (EM) instead. Turkey’s battered lira stumbled again and Russia’s rouble hit a five-month low as concerns over strained relations with the West were fed by military clashes in Ukraine.

“Notwithstanding the remoteness of a ‘proxy’ escalation in the Ukraine conflict, the larger concern remains that the US will levy more severe sanctions against Russia than prior to the flare up,” BCS brokerage said in a note.

In commodities, Brent crude futures were nudging lower at $62.67 a barrel. US crude was up at $59.51. Gold and copper were off at $1,736.4 an ounce and 8,980 a tonne, respectively.

“A large share of the hopes of a US growth boom supported by state aid and rapid vaccination progress has already been priced in,” Commerzbank forex and EM analyst Esther Reichelt wrote in a note to clients. “More and more pronounced dollar gains would only be justified if this boom also caused rising inflation rates to which the Fed would have to react with higher interest rates.”

Reuters