European shares and US stock futures edged higher on Monday, while German government bonds rallied, as investors weighed the economic growth outlook and the future of central bank policy.
The regional Stoxx Europe 600 share index — which is down almost 6 per cent for the year but has erased losses incurred since Russia invaded Ukraine in late February — added 0.3 per cent, led by strong gains for food delivery group Delivery Hero. Germany’s Dax gauge traded flat, as did London’s FTSE 100.
“We have to be humble and say that the range of possible [economic] outcomes, given the war, and the inflation outlook, is really quite wide,” said Kasper Elmgreen, head of equities at Amundi. “Eurozone growth is coming down, but a recession isn’t obvious because consumer and business balance sheets are quite strong.”
Futures contracts tracking Wall Street’s benchmark S&P 500 rose 0.1 per cent, while those tracking the technology-heavy Nasdaq 100 index added 0.2 per cent.
In debt markets, the yield on Germany’s 10-year Bund, a benchmark for eurozone borrowing costs, fell 0.08 percentage points to 0.49 per cent. Bond prices rise as their yields fall.
The moves came as the BDI, Germany’s main business lobby, warned the “economic outlook looks very bleak” because of the impact from the Ukraine war on consumer confidence and investment, as well as supply chain bottlenecks.
At the same time, the UK’s 10-year gilt yield slipped 0.08 percentage points lower to 1.53 per cent.
In the US, the Treasury yield curve is now at its most inverted since 2007, when measured by the difference in two and 10-year borrowing costs. US government bonds recorded their worst quarter on record in the first three months of this year as traders looked ahead to a series of rapid Federal Reserve interest rate rises.
On Monday, the yield on the two-year Treasury note fell 0.02 percentage points to 2.42 per cent. This yield, which is sensitive to interest rate changes, last week moved above that of the 10-year for the first time since 2019. The yield on the 10-year note — a benchmark for borrowing costs worldwide, which moves with inflation and growth expectations — was broadly steady by the mid-afternoon in London at 2.38 per cent.
The inversion of this closely watched portion of the yield curve is typically perceived as a sign of a coming recession. Yet economists and policymakers are undecided about whether the Fed’s huge pandemic era bond purchasing scheme may have distorted the bond market, skewing yields.
Aneta Markowska, chief financial economist at Jefferies, said there was “little evidence that we are in a late-cycle economy”, as recessions tend to coincide with periods of “corporate restructuring, triggered by significant margin compression.
“Margins have only begun to contract and are still close to cycle highs,” she added. “This does not look like a corporate sector that’s about to embark on a cost-cutting campaign.”
Elsewhere in equity markets, shares in Hong Kong rose sharply after regulators in China relaxed restrictions that had blocked US authorities from accessing audits.
The Hang Seng Tech gauge closed 5.4 per cent higher, helping the wider Hang Seng index climb 2.1 per cent on Monday.
The share price bump came after the China Securities Regulatory Commission, Beijing’s top financial watchdog, said on Saturday it would change confidentiality laws that prevented its overseas listed companies from providing sensitive financial information to foreign regulators.
Markets in mainland China were closed for a holiday.
Oil prices rose after declines last week, with Brent crude, the international benchmark, rising 2.5 per cent to $107 a barrel.
