# World stocks turn positive in May on Fed bets
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-05-30
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: Global Stock Markets Rise as Dollar Falls: Latest Updates
Meta Description: World share markets climb on speculation of a slowdown in U.S. tightening, easing in COVID restrictions in China, and positive outlook on Federal Reserve
URL: https://financedigest.com/world-stocks-turn-positive-in-may-on-fed-betshtml

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By Danilo Masoni

MILAN (Reuters) – World share markets rose on Monday and the dollar was anchored at five-week lows on bets of a possible slowdown in U.S. monetary tightening and after an easing of [COVID restrictions in China](https://www.financedigest.com/first-foreign-covid-vaccines-head-to-china-from-germany.html "First foreign COVID vaccines head to China from Germany").

The gains built on last week’s rally, helping the MSCI’s benchmark for global stocks [turn positive](https://www.financedigest.com/uk-retailers-turn-positive-on-sales-hopes-after-bleak-winter.html "UK retailers turn positive on sales hopes after bleak winter") on the month, as confidence in a less aggressive Federal Reserve grew following signs of peaking American inflation on Friday.

Also helping to mellow the mood was news that Shanghai authorities would cancel many restrictions on businesses resuming work from Wednesday, [easing a city-wide lockdown that began two months](https://www.financedigest.com/inflation-in-key-german-states-eases-for-second-month.html "Inflation in key German states eases for second month") ago.

The MSCI index [hit its highest level in more than four weeks](https://www.financedigest.com/sterling-hits-2-1-2-week-high-eyes-on-boe.html "Sterling hits 2 1/2 week high, eyes on BoE") and by 1332 GMT it was up 0.55% to 656.4 points, supported by a positive session in Europe after strong gains in Asia. The index was now up 0.5% so far this month.

“It seems the worst is behind us. The bad news is out. The market is hoping it has seen the bottom,” said Carlo Franchini, head of [institutional clients](https://www.financedigest.com/the-gibraltar-blockchain-exchange-announces-soft-launch-onboarding-pre-selected-institutional-clients-and-pre-qualified-retail-traders.html "The Gibraltar Blockchain Exchange Announces Soft Launch, Onboarding Pre-selected Institutional Clients and Pre-qualified Retail Traders") at Banca Ifigest in Milan.

Then there also seems to be a little more clarity on what the ECB (European [Central Bank](https://www.financedigest.com/stock-pickers-reckon-its-time-to-move-on-from-central-banks.html "Stock pickers reckon it’s time to move on from central banks")) will do. There will be rate hikes that should move the bloc away from negative rates that have had an extremely distorting [effect on banks](https://www.financedigest.com/banking-turmoil-will-not-have-knock-on-effect-on-commodities-trafigura-cfo.html "Banking turmoil will not have knock-on effect on commodities -Trafigura CFO") and markets,” he added.

The pan-European STOXX 600 [equity benchmark gained](https://www.financedigest.com/gaining-workplace-equity.html "Gaining workplace equity") 0.3%, while Japan’s Nikkei added 2.2% and Chinese blue chips firmed 0.7%.

Although [Wall Street](https://www.financedigest.com/wall-street-drops-treasury-yields-gyrate-on-fed-chairman-powells-remarks.html "Wall Street drops, Treasury yields gyrate on Fed Chairman Powell’s remarks") will be shut for the Memorial Day holiday, U.S. [derivative markets](https://www.financedigest.com/the-dairy-derived-flavors-market-to-grow-based-on-instilled-innovation.html "The Dairy Derived Flavors Market To Grow Based On Instilled Innovation") were open. S&P 500 e-mini futures rose 0.3%, having rallied 6.6% last week in their best [run this year](https://www.financedigest.com/london-ranked-as-europes-most-attractive-city-for-businesses-and-employees-for-second-year-running.html "London ranked as Europe’s most attractive city for businesses and employees for second year running"), while Nasdaq e-minis were up 0.7%.

Investors have seized on hints that the Federal Reserve, once it has [hiked aggressively](https://www.financedigest.com/dollar-bounces-as-fed-seen-keeping-up-aggressive-rate-hikes.html "Dollar bounces as Fed seen keeping up aggressive rate hikes") in June and July, might then slow its tightening.

Talk of a pause in the [Fed rate hike](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike") cycle is doing wonders for everything ranging from equities to bonds and – unfortunately – commodities too,” said AFS Group analyst Arne Petimezas in Amsterdam.

Over the past few weeks about 50bps has been lopped off from [Fed terminal rate](https://www.financedigest.com/fed-rates-up-boe-up-ecb-up-stocks-up.html "Fed rates up, BoE up, ECB up, stocks up") pricing. Predictably, [Fed pricing suggests the Fed will shift a gear lower](https://www.financedigest.com/cyclicals-bat-drag-ftse-100-lower-ahead-of-fed-decision.html "Cyclicals, BAT drag FTSE 100 lower ahead of Fed decision") after the annual Jackson Hole retreat in August,” he added in a note.

The steadier market [mood has seen the safe-haven dollar](https://www.financedigest.com/world-stocks-cling-to-upbeat-mood-dollar-stalls.html "World stocks cling to upbeat mood, dollar stalls") decline, while the euro was boosted by hawkish comments from European Central Bank officials who have been flagging a rate hike as early as July.

“U.S. economic data appear to be slowing, [ECB officials are debating even faster initial rate hikes](https://www.financedigest.com/analysis-investors-stick-to-bets-on-early-end-to-ecb-hikes-as-uncertainty-grows.html "Analysis-Investors stick to bets on early end to ECB hikes as uncertainty grows"), and front-end rate differentials have started to move in the euro’s favour,” noted Goldman Sachs analyst Zach Pandl.

“A sharp slowing in the U.S. economy – if not matched by similar weakness in [Europe – could result in a meaningful euro](https://www.financedigest.com/europe-power-firms-need-1-5-trillion-euros-in-margin-calls-equinor-says.html "Europe power firms need 1.5 trillion euros in margin calls, Equinor says") rebound, though the reverse is also true if U.S. [data hold](https://www.financedigest.com/sterling-holds-firm-after-uk-jobs-data-muddies-rate-outlook.html "Sterling holds firm after UK jobs data muddies rate outlook") up better than expected,” Pandl added. We [see downside risks](https://www.financedigest.com/heineken-sees-europe-resilience-offseting-asia-slowdown-risk.html "Heineken sees Europe resilience offseting Asia slowdown risk") to U.S. growth, and have recommended USD/JPY put options to express this view.”

That underscores the importance of key U.S. [data due this week](https://www.financedigest.com/wall-st-seen-steady-ahead-of-inflation-data-fed-later-in-week.html "Wall St seen steady ahead of inflation data, Fed later in week"), which includes the ISM survey of manufacturing on Wednesday and the May payrolls report on Friday.

[Payrolls are forecast to rise](https://www.financedigest.com/instant-view-us-may-payrolls-rise-up-than-expected.html "Instant View: US May payrolls rise up than expected") by a solid 320,000, though that would be down from April, with unemployment at 3.5%.

The euro rose to a five-week high and was last up 0.35% at $1.0764, having risen 1.6% last week. The [dollar index fell to a fresh five-week low](https://www.financedigest.com/euro-rises-after-spanish-cpi-dollar-slips-towards-8-mth-low.html "Euro rises after Spanish CPI, dollar slips towards 8-mth low") of 101.35 and was last down 0.2% at 101.46, after shedding 1.3% last week.

[China’s offshore yuan rose 0.3% after hitting a one-week high of 6.654 per dollar](https://www.financedigest.com/dollar-slips-yuan-gains-on-china-pmi-hot-inflation-lifts-euro.html "Dollar slips, yuan gains on China PMI; hot inflation lifts euro").

The chance of a less hawkish Fed saw Treasuries rebound, with 10-year [note yields ending on Friday just above a six-week low](https://www.financedigest.com/dollar-falls-to-nine-month-low-as-powell-notes-progress-in-disinflation.html "Dollar falls to nine-month low as Powell notes progress in disinflation") at 2.743%, down from a peak of 3.203% on May 9.

In Europe, yields climbed on Monday after [German inflation](https://www.financedigest.com/german-inflation-rate-to-ease-over-course-of-2023-econ-minister.html "German inflation rate to ease over course of 2023 – econ minister") rose more than expected in May, reaching its highest level in nearly half a century at 8.7%. Germany’s 10-year yields rose 9 bps to an over one-week high of 1.064%.

The pullback in the [dollar helped gold](https://www.financedigest.com/stocks-and-gold-cheer-u-s-inflation-picture-while-dollar-slides.html "Stocks and gold cheer U.S. inflation picture, while dollar slides") off its recent lows, sending the metal up 0.4% at $1,860.5 an ounce. \[GOL/\]

Oil prices hit their highest in over two months, as traders waited to see whether a planned [European Union meeting would reach an agreement on banning Russian oil](https://www.financedigest.com/explainer-why-malaysia-is-considering-a-ban-on-palm-oil-exports-to-the-european-union.html "Explainer-Why Malaysia is considering a ban on palm oil exports to the European Union") imports.

Brent rose 0.4% to $119.91 per barrel, while U.S. crude gained 0.5% to $115.64 per barrel.

(Reporting by Danilo Masoni in Milan and Wayne Cole in Sydney; Editing by Sonali Desai and Susan Fenton)


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