World shares climb on Fed cut bets, China gains; yen weakens

US stocks looked to open higher on renewed bets that the Federal Reserve would likely ease interest rates this year, while the yen weakened after a strong surge last week from Tokyo’s suspected currency intervention.

Futures remained buoyant with the S&P 500 adding 0.3% and Nasdaq futures ticking up 0.2% each in a positive sign for the Wall Street open later on after Friday’s US nonfarm payrolls report reignited hopes of a soft landing for the US economy.

They also reinforced bets Fed rate cuts would most likely come this year, after Chair Jerome Powell also maintained the central bank’s easing bias last week.

“(The) data point to a jobs market that is still tight, but not nearly as hot as it was a year or two ago,” said economists at Wells Fargo. “This should support a further slowdown in inflation as the year progresses, even if improvement proceeds only gradually.”

Traders would also be closely watching whether the S&P rises beyond the 50 day moving average of 5130 on Monday, an important price point in the S&P, said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

“If we breach this level we’ll continue to see an uptrend of new highs but if it is missed, it could take a couple of days or even weeks to return to these levels,” said Ielpo. The dollar held broadly steady on Monday, leaving the euro away from a one-month high to last trade at $1.0771, while sterling rose 0.2% and last bought $1.2575.

In Europe, Goldman Sachs raised its 2024 EPS growth forecast for STOXX 600 companies to 6% from 3% earlier, the bank said in a note on Friday.

According to Goldman, a 10% annual rise in Brent prices adds about 2.5 pp (percentage points) to annual EPS growth, and a 10% weaker euro/dollar exchange rate adds about the same.

With public holidays in the UK and Japan, markets in mainland China and Europe got off to an upbeat start also enjoying the glow from renewed US optimism.

Europe’s broadest stock index rose 0.7% by 1245 BST.

Oil prices were also in focus on the prospects of Saudi Arabian price hikes and rising tensions in the Middle East, with Brent futures up 73 cents to $83.69 a barrel and US crude futures 81 cents higher to $78.92 per barrel.

MSCI’s broadest index of Asia-Pacific shares outside Japan peaked at its highest level since February 2023 and last gained 0.7%, while China’s blue-chip index closed 1.5% higher.

Hong Kong’s Hang Seng Index rose 4.7% last week and on Friday clocked its longest daily winning streak since 2018, closing on Monday 0.55% higher.

The rebound in Chinese markets followed the country’s Politburo meeting, where policymakers said they will step up support for the economy with prudent monetary and proactive fiscal policies.

A long-awaited recovery in the Chinese economy is also gaining momentum. Data on Monday showed the country’s services activity expansion slowed a touch amid rising costs, but growth in new orders accelerated and business sentiment rose.

Elsewhere, traders remained on alert for further volatility in the yen, after last week’s bouts of suspected intervention from Japanese authorities to stop a sharp slide in the currency.

Tokyo is suspected of having spent more than 9 trillion yen ($59 billion) to support its currency last week, as suggested by data from Bank of Japan, taking the yen from a 34-year low of 160.245 per dollar to a roughly one-month high of 151.86 over the span of a week.

The yen gave back some of those gains on Monday and was last 0.5% lower at 153.765 per dollar, after briefly weakening past the 154 level earlier in the session.

Separately, investor morale in the eurozone improved for the seventh consecutive month in May to its highest level in more than two years, a survey showed on Monday, adding however that the recovery in the bloc’s largest economy, Germany, was delicate.

Sentix’s index for the eurozone rose to -3.6 points in May from -5.9 in April, its highest level since February 2022, also beating a forecast of -5.0 in a Reuters poll of analysts.

“The trend is therefore moving in the right direction, albeit in small steps, “ Sentix said. “The data situation is encouraging, as the economy appears to have somewhat digested the various burdens of the last two years since the beginning of the Ukraine crisis.”

Sentix said that expectations values for Germany were no longer negative for the first time since February 2022, but the situation index remained very weak at -33.5 points.

“The weak economic momentum is therefore by no means ‘self-sustaining,’” it said. “We can only hope that German policymakers do not crush this delicate plant of hope again.”