World stocks firm, Nikkei closes at 33-year peak

[July 03, 2023]  By Dhara Ranasinghe

LONDON (Reuters) - World stocks rose to a two-week peak on Monday, with Japan's Nikkei closing at its highest level in 33 years, drawing support from signs that cooling inflation might temper central banks' appetite to further hike rates.

European shares rallied, while U.S. equity futures pointed to a positive open for Wall Street which closes early ahead of Tuesday's July 4 holiday.

In Asia, a Bank of Japan survey showed business sentiment improved in the second quarter, while the Caixin manufacturing survey dipped to 50.5, from 50.9 in May, showing a slowdown in China's factory activity. That slightly beat market forecasts, but underlined the weakening economic trend.

U.S. data on Friday which hinted towards cooling inflation helped bolster gains in the tech sector and underpinned sentiment in world stocks. This saw the tech-heavy Nasdaq on Friday make its biggest first-half gain in 40 years. Apple closed with a $3 trillion market valuation for the first time.

"You have had a pull back in how far rates will rise, so you see the outperformance in tech, which is driving the market," said Seema Shah, chief global strategist, Principle Asset Management in London.

Tesla-listed shares in Frankfurt jumped 5% after the electric vehicle firm said on Sunday it delivered a record number of vehicles in the second quarter.

MSCI's world equity index rose 0.25% to its highest level in just over two weeks, while the pan-European STOXX 600 index also hit a two-week peak.

"The day of reckoning is still coming but there is strength in the economy so you can find positivity in equity markets," said Nordea chief analyst Jan von Gerich.

China's blue-chip stocks rose on hopes of more policy easing after the country's central bank said it would implement prudent monetary policy in a "precise and forceful manner" to support economic growth and employment.

Chinese blue chips shed 5% last quarter while much of the developed world rallied.

WEAK YEN

The prospect of a further U.S. rate rise and the Bank of Japan's staunch commitment to super-easy monetary policy continues to underpin the dollar against the yen.

The dollar stood at 144.86 yen on Monday, after hitting an eight-month peak of 145.07 last week before the risk of Japanese intervention slowed its ascent.

A woman uses a mobile phone in front of an electric board displaying the Nikkei stock average outside a brokerage in Tokyo, Japan June 14, 2023. REUTERS/Kim Kyung-Hoon/File photo

The euro was likewise firm at 157.66 yen, and just off its recent 15-year top of 158.01. The single currency was last down 0.25% at $1.0883.

Sentiment had been soothed on Friday by a modest downward surprise in U.S. inflation while a flat reading for consumer spending suggested the Federal Reserve's rate hikes were having an impact, albeit gradually.

Debt markets, however, still imply around an 87% chance of the Fed hiking to 5.25-5.5% this month, and a 40% probability of yet a further rise by November.

Key U.S. data this week includes closely watched surveys on manufacturing and services, job openings and the June payrolls report. Median forecasts are for a steady unemployment rate, while jobs are seen up 225,000 after May's surprisingly strong 339,000.

Michael Feroli, a JPMorgan economist said even these forecasts would not be sufficient for the Fed to avoid further tightening.

"While we see a strong case for a July hike, we still believe the two subsequent payroll reports prior to the meeting in September will show enough slowing to allow the Fed to more comfortably go on extended hold."

Turkey's lira nudged to yet another record low beyond 26.1 per dollar, with investors' awaiting central bank minutes later in the day after policy makers ramped up their policy rate by 650 basis points in June - the strongest signal of a return to orthodoxy though the hike had fallen short of market expectations.

Rising rates globally have seen gold struggle recently and the metal was last at $1,912 an ounce, 1.37% higher than its three-month low $1,892.82.

And in oil markets, Brent fell 0.4% to $75.12 a barrel, while U.S. crude eased a similar amount to $70.27.

(Reporting by Dhara Ranasinghe; additional reporting by Wayne Cole in Sydney; editing by Nell Mackenzie and David Evans)

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