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World Shares Set to Extend Gains as Bond Rally Boosts Rate Cut Expectations

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World shares are on track for the sixth consecutive day of gains following a bond market rally last week, as investors anticipate rate cuts by central banks in the United States and Europe. The bond market has recovered after a positive US payrolls report and strong productivity numbers indicated a cooling labour market, reducing the need for further interest rate hikes by the Federal Reserve. Futures markets now suggest a 90% chance that the Fed is finished raising rates, with an 86% chance of a rate cut as early as June. The European Central Bank is also likely to cut rates by April, and the Bank of England is expected to ease rates in August. The rally in bond markets paused on Monday, with the benchmark US 10-year yields rising slightly. However, yields remain lower than in mid-October, when they reached over 5%.

There is a note of caution among economists, such as Samy Chaar, chief economist at Lombard Odier, who warn that the pendulum has swung too far towards rate cuts. While many believe that inflation outlook will allow for rate cuts next year, some analysts argue that the market may be overestimating the number and timing of rate cuts. This sentiment will likely be challenged by central bank speakers this week. Nine members of the Federal Reserve are scheduled to speak, including Chair Jerome Powell, along with representatives from the Bank of England and the European Central Bank.

The Australian central bank stands out as an outlier, with expectations that it will resume raising rates at its policy meeting on Tuesday due to stubbornly high inflation. The Bank of Japan is also moving towards tightening, although at a slow pace. The head of the central bank stated on Monday that the inflation target is closer to being achieved, but ultra-loose monetary policy is still necessary.

Lower borrowing costs continue to support share markets, particularly in Asia where shares rose 2% on Monday. MSCI’s world index also gained 0.38% for its sixth day of gains. European shares opened positively on Monday, following their best week since March.

The retreat in Treasury yields has weakened the US dollar, with the dollar index falling to its lowest level since late September. The euro has gained against the dollar, reaching its highest level in nearly two months. The dollar has also lost ground to the yen.

Gold prices have remained steady and are within reach of their recent five-month peak, benefiting from the drop in the dollar and yields. Oil prices have slightly rebounded after a 6% decline last week, as Saudi Arabia and Russia confirm they will continue their additional voluntary oil output cuts.

In the Middle East, Israel has rejected calls for a ceasefire in Gaza and is expected to intensify its operations against Palestinian terrorist group Hamas.

More detail via www.theepochtimes.com here… ( Image via www.theepochtimes.com )

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