Shares set for best week since 2011, dollar at 3-year low
london — World shares were set to post their best week of gains in six years on Friday after two consecutive weeks spent in the red, shrugging off a rise in global borrowing costs while the dollar hit its lowest level since 2014.
The MSCI world index of stocks, which tracks shares in 47 countries, was up 0.4 per cent after European bourses opened. After suffering its biggest weekly drop since August 2015 last week, this week’s recovery puts the index on track for its best weekly showing since early December 2011.
The index has now reclaimed more than half of the 10.7 per cent plunge from a record intraday high on January 29 to a four-month intraday low a week ago.
Investors have been puzzled at this week’s quick rebound in stock markets, which has also coincided with a rise in bond yields on evidence that inflation is starting to creep up globally.
The argument most commonly offered by economists has been that historically, it’s not unusual for stocks and bond market borrowing costs to rise in tandem with a rapidly expanding economy.
European shares were set to chalk up healthy weekly gains, snapping a three-week losing streak as earnings updates continued to impress, and volatility and jitters over rising inflation eased. Among country benchmarks, the UK’s FTSE was up 0.6 per cent and Germany’s DAX added 0.8 per cent, while Italy’s FTSE MIB outperformed, up 1.2 per cent.
MSCI’s broadest index of AsiaPacific shares outside Japan rose 0.4 per cent, though many Asian markets were closed on Friday for the Lunar New year.
Japan’s Nikkei rose 1.2 per cent, with investors relieved to see the government appoint Bank of Japan Governor Haruhiko Kuroda for another term, suggesting the central bank will be in no rush to dial back its massive stimulus programme.
The pan-European benchmark is up 3 per cent so far this week, set for its best week since December 2016, but still down around 6 per cent from the 2-1/2-year peak it hit in January.
Extending the previous day’s losses, the dollar’s index against a group of six major currencies fell to 88.253, the lowest since December 2014. The index was on track to lose around 2 per cent on the week in its largest decline since February 2016.
There is no strong consensus yet on what is driving the dollar’s persistent weakness, especially in light of rising yields. Some say it simply reflects a return of risk appetite and a shift to higher-yielding currencies, including many emerging market ones.