World stocks at two-year high, US price data in focus

European stocks have opened higher and world stocks were steady at their highest in more than two years as investors waited for US inflation data due this week to give clues about when the US Federal Reserve might cut rates.

The S&P 500 rose above 5,000 points for the first time ever last week, boosted by tech stocks, and world equities have risen for three weeks straight, even though US Treasury yields have edged higher recently as investors lower their expectations for how soon the Fed could cut rates.

With most major Asian markets closed for holidays on Monday, analysts said they expected a quiet day in markets as traders wait for US inflation data on Tuesday, as well as British inflation data and eurozone GDP on Wednesday.

“We are seeing markets dialling back expectations for rate cuts,” said UBS multi-asset strategist Kiran Ganesh, adding that markets were pricing fewer than five cuts in the US this year, down from six or seven at the start of the year.

“The equity market has remained relatively immune to that because the reason why we’ve seen less interest rate cuts expectations has been down to stronger economic growth which of course is good for equities as well.”

Strong US jobs data earlier in February meant investors reduced expectations for a Fed rate cut at its next meeting, with markets pricing an 84.5 per cent chance of rates remaining unchanged in March.

The MSCI world equity index, which tracks shares in 47 countries, was flat on the day, having touched its highest since January 2022 earlier in the session.

The pan-European STOXX 600 was up 0.3 per cent, having held relatively steady in February but gained 1.4 per cent in January .

London’s FTSE 100 was little changed, and Germany’s DAX was up 0.2 per cent.

The US dollar index was up about 0.1 per cent at 104.130, and the euro was a touch lower at $US1.0774, coming down from a 10-day high hit earlier in the session.

The Japanese yen, which has weakened as US rate cut expectations have reduced, was steady at 149.190 per dollar .

Investors have also reduced their expectations for rate cuts by the European Central Bank after two policymakers said last week the ECB needed more evidence that inflation was easing before it can cut rates.

Eurozone government bond yields, which rose sharply last week, were a touch lower on Monday, with the benchmark German 10-year yield down by one basis point at 2.373 per cent.

Oil prices were down after Israel saying it had “concluded” a series of strikes in southern Gaza slightly eased worries about supply from the Middle East.

Brent crude futures were down 0.5 per cent at $81.82 per barrel and West Texas Intermediate crude futures were down 0.5 per cent at $US76.46 per barrel.

Gold was a touch lower at $US2,022.6 per ounce

Markets in China, Hong Kong, Japan, South Korea, Singapore, Taiwan, Vietnam and Malaysia were closed for holidays.

Mainland China’s financial markets are closed for the Lunar New Year holiday and will resume trade on Monday, February 19.

Hong Kong trade will resume on February 14.