Global stocks climb with bonds as risk tumbles; pound declines

German shares enter bull market after rallying 22% from February low; S&P 500 Index is set for a record high

A sense of calm returned to global markets as stocks rose with bonds and a measure of risk tumbled to a seven-month low on signs that central banks will keep a lid on interest rates. The pound countered gains in major currencies.

The MSCI All-Country World Index of equities climbed for a fourth day, German shares entered a bull market after rallying 22 per cent from their February low, and the S&P 500 Index was set for a record high. Sterling posted its longest slide since May and ceded ground to all of its 16 major peers after a Bank of England (BoE) policymaker said more easing is likely to be required.

Markets around the world have experienced reduced levels of stress as central banks move to stimulate economic growth while traders grow more confident that the Federal Reserve will raise borrowing costs gradually. The Bank of America Merrill Lynch's GFSI Market Risk Index, a measure of future price swings implied by option markets in global equities, interest rates, currencies and commodities, has slumped since the end of June.

"Global monetary policy is clearly in an unabashedly accommodative mode, and investors are reacting to that," said Alan Gayle, a senior strategist at Atlanta-based RidgeWorth Investments, which has about $37 billion in assets. "We think that upward momentum is gradually returning to this market, so the bias is higher."

Stocks

The outlook for still abundant global liquidity and better-than-forecast corporate results set the tone for equity trading. MSCI's global stocks index rose 0.5 per cent at 1:30 pm in New York to the highest level in a year. The Stoxx Europe 600 Index extended a five-day advance to 2.7 per cent. Germany's DAX Index climbed 2.5 per cent as Munich Re, the second-biggest reinsurer, reported net income that was more than double the average analyst projection. While the S&P 500 added only 0.1 per cent, it's up almost 20 per cent from its February low.

Bonds

The yield on UK's 10- and 30-year bonds fell to records as the central bank said it received offers to sell £1.118 billion ($1.46 billion) of gilts due in more than 15 years, compared with a target of £1.17 billion. The uncovered operation is the first since the BoE started quantitative easing in 2009. "You'd understand why investors might not be keen to offload longer bonds - if you are looking for yields that's the only place on the curve to be," said Jason Simpson, a London-based fixed-income strategist at Societe Generale SA. Benchmark 10-year Treasury note yields fell three basis points, or 0.03 percentage point, to 1.56 per cent, Bloomberg Bond Trader data show, after touching as high as 1.60 per cent earlier.

Currencies

The pound fell 0.3 per cent to $1.3007 as investors prepared for data that will give further clues on the state of the UK economy in the wake of the decision to quit the European Union. Sterling earlier dropped below $1.30 for the first time in almost a month. The BoE cut interest rates for the first time since 2009 in its August 4 policy announcement, while exceeding economists' expectations on quantitative easing.

Commodities

Oil traded near $43 in New York after Opec said on Monday it was planning to hold informal talks next month. Though members of Opec plan to discuss the market at the International Energy Forum in Algiers, there are no plans to revive the output-freeze proposal that failed in April, two delegates said last week. Hedge funds increased their short position in West Texas Intermediate crude to a record during the week ended August 2.

"Opec is going to do nothing," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. "The big issue at the end of the day is going to be that CFTC short position. It is just so large that any reason to trade higher is going to be taken advantage of."

The Bloomberg Commodity Index, which measures returns on raw materials, fell 0.5 per cent. Copper resumed its decline on speculation over weaker demand in top consumer China. Gold rebounded from the lowest in a week as the dollar weakened, boosting demand for precious metals as a store of value.

AROUND THE WORLD

• The MSCI global stocks index rose 0.5 per cent at 1:30 pm New York time
   
• Germany’s DAX Index climbed 2.5 per cent
   
• Sterling earlier dropped below $1.30 for the first time in almost a month
   
• The Stoxx Europe 600 Index extended a five-day advance to 2.7 per cent
   
• Oil traded near $43 in New York after Opec said on Monday it was planning to hold informal talks next month
   
• Futures on the S&P 500 Index slipped 0.1 per cent on Monday
   
• Contracts on the Euro Stoxx 50 Index were down 0.2 per cent