Global stocks above November 2020 lows, sterling has recovered some ground

Global stocks above November 2020 lows, sterling has recovered some ground
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  • The dollar fell from a 20-year high on Monday
  • German 10-year bond yields near 11-year highs
  • Oil rallied from nine-month lows on Monday

LONDON/HONG KONG, Sept 27 (Reuters) – World stocks lifted from a 21-month low on Tuesday and sterling hit a record low against the dollar a day earlier on plans to cut UK tax cuts, as markets slid out of steam.

US S&P futures bounced 0.94% after Wall Street slipped deeper into a bear market on Monday, with the benchmark 10-year Treasury yield falling from a 12-year high in the previous session and the dollar falling from a 20-year high in a basket of currencies.

US Federal Reserve officials said on Monday that their priority remains controlling domestic inflation, even as markets remain nervous. Read more

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“US rate expectations have risen fairly significantly,” said Andrew Hardy, investment manager at Momentum Global Investment Management, although he added that “there is already a lot of bearishness in the market.”

Markets are pricing in a 76% chance of another 75 basis point move at the Federal Reserve’s next meeting in November.

Central bank speakers on Tuesday included Fed Chair Jerome Powell and ECB President Christine Lagarde.

MSCI World Equity Index (.MIWD00000PUS) Monday rose 0.29% after hitting its lowest since November 2020. European stocks gained more than 1% and Britain’s FTSE gained (.FTSE) rose 0.6%.

Sterling fell to a record low of $1.0327 on Monday as government tax cut plans announced on Friday came on top of huge energy subsidies.

The British currency recovered 4.6% from that low on Tuesday to $1.0801.

After the fall in the pound, the Bank of England said it would not hesitate to change interest rates and was monitoring markets “very closely”. Read more

Bank of England Chief Economist Hu Peel will address a panel at 1100 GMT.

A lack of confidence in the government’s strategy and its finances hit gilts again on Friday and Monday.

The five-year gilt yield rose as much as 100 basis points in two trading days, though it fell to Tuesday’s high.

“(It’s) certainly something that’s unfolding…perhaps we’re at a certain early stage of seeing how the market digests this kind of information,” said Yuting Shao, macro strategist at State Street Global Markets.

“Obviously the tax cut plan was really aimed at stimulating growth, reducing the burden on households, but it raises questions about what the impact is on fiscal policy.”

Britain’s spillover puts other assets on edge.

Bond selling in Japan pushed yields to record highs at the Bank of Japan and prompted more unscheduled purchases from the central bank in response.

German 10-year bond yields briefly hit a fresh near 11-year high of 2,142%.

Ten-year US bond yields fell 3.2 bps after hitting a high of 3.933% on Monday.

MSCI’s broadest index of Asia shares outside Japan (.MIAPJ0000PUS) 0.5% hit a new two-year low before bouncing back. Japan’s Nikkei (.N225) rose 0.5%.

The dollar index fell 0.13% to 113.72, its strongest since May 2002, after touching 114.58 on Monday.

The European single currency rose 0.24% to $0.9629 after hitting a 20-year low a day earlier.

Oil prices rose more than 1% after plunging to a nine-month low a day earlier, amid indications that producer bloc OPEC+ may cut output to avoid a further fall in prices.

US crude rose 1.4% to $77.70 a barrel. Brent crude rose 1.27% to $85.20 a barrel.

Gold, which hit a 2-1/2-year low on Monday, rose 0.8% to $1,634 an ounce.

Bitcoin broke above $20,000 for the first time in nearly a week as the cryptocurrency bounced along with other risk-sensitive assets. Read more

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Reporting by Xie Yu; Editing by Edmund Claman, Muralikumar Anantharaman and Raisa Kasolowski

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