European shares rise as traders assess global economic outlook

European equities and Wall Street futures rose early on Monday as traders attempted to call an end to a downturn in global stocks driven by surging inflation and fears of major economies falling into recession.

The Stoxx Europe 600 share index added 1.1 per cent in early dealings and London’s FTSE 100 rose 0.8 per cent. This echoed a late turnround on Wall Street on Friday when the S&P 500 equity benchmark briefly entered bear market territory — defined as a 20 per cent drop from a recent peak — before rebounding to close 0.01 per cent higher.

Futures trading implied the S&P would add 1.2 per cent in early New York dealings and the technology-focused Nasdaq 100 would also gain 1.2 per cent.

“Stocks appear to have begun another material bear market rally,” Morgan Stanley strategist Michael Wilson said. “After that, we remain confident that lower prices are still ahead.”

Global equities have tumbled this year as inflation — driven by economies reopening from coronavirus shutdowns and Russia’s invasion of Ukraine disrupting fuel and food prices — hit multi-decade highs in many countries.

Central banks including the US Federal Reserve and the Bank of England have signalled they will raise borrowing costs until consumer prices stabilise, hitting valuations of stocks that were previously flattered by ultra-low interest rates.

Meanwhile, quarterly earnings from large US companies including Walmart and Target indicated consumer spending had been depressed by higher living costs.

“Calling a bottom in markets would be a lot more convincing if recession risks were already priced in, and they are not,” strategists at ING said in a note to clients.

In Asia on Monday, Hong Kong’s Hang Seng share index fell 1.3 per cent on Monday, taking its loss since early March to around 10 per cent, and stringent anti-coronavirus lockdowns in China have sapped investor appetite for backing businesses in the region.

Mainland China’s CSI 300 traded 0.6 per cent lower, although the Nikkei 225 in Tokyo added 1 per cent.

The US dollar index, which measures the US currency against six others, fell 0.5 per cent as analysts queried whether a dollar rally caused by investors selling out of other assets had gone too far.

“The market has hoarded a huge amount of dollars in recent months,” Deutsche Bank strategist George Saravelos said, “leading to a very substantial dollar overvaluation.”

The euro rose 0.5 per cent against the US currency on Monday, to purchase $1.06. Sterling added 0.7 per cent to just under $1.26.

Government bond prices softened, following gains on Friday as investors rushed to haven assets. The yield on the 10-year US Treasury note, which underpins asset valuations globally, added 0.05 percentage points to 2.8 per cent. Germany’s equivalent Bund yield rose 0.02 percentage points to 0.97 per cent.

Brent crude, the oil benchmark, rose 0.8 per cent to $113.5 a barrel.