Global stocks rose, bonds rallied on bright end to tough quarter

LONDON Sept 29 (Reuters) – Global stocks rose on Friday, while better-than-expected euro zone inflation data lifted government bonds, with both asset classes still set for their worst quarter in a year in response to central banks’ pledge to Higher interest rates.

MSCI’s broadest index of global shares (..MIWD00000PUS) rose 0.4% on Friday, while European and US government bond markets rallied strongly, reflecting a reset in interest rate bets.

In a surprising bit of good news for hawkish central banks, the data showed the euro area rose 4.3% year-on-year in September, beating economists’ forecasts for a 4.5% rise and the lowest in two years.

The yield on Germany’s two-year bond, which tracks rate expectations and falls as debt prices rise, fell 7 basis points (bps) to 3.23%.

Germany’s 10-year government bond yield fell 12 bps to 2.848%, with the euro area debt benchmark heading for its best trading day in more than a month.

The 10-year US Treasury yield fell 6 bps to 4.6% as strong sentiment flowed across the Atlantic.

This provided a bright end to a dismal quarter for government bonds. Germany’s 10-year yield rose 45 bps in the quarter, reflecting the worst three-month selloff since the third quarter of 2022.

The yield on the 10-year US Treasury rose 72 bps since July, its worst quarterly performance since the same quarter last year.

The debt market relief came as some analysts argued that bond yields had gotten too bad in recent months.

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The European Central Bank and the U.S. Federal Reserve have signaled that smart investors can expect interest rates to stay where they are for a long time, following their decades-long cycle of sharp monetary tightening.

“Yields are very high and will move lower, but we’re in that gap between now and when that happens,” said James Rossiter, head of global macro strategy at TD Securities in London.

Strategists at Barclays pointed out in a note to clients, however, that “equities are unlikely to be immune if the bond market turns even more erratic,” as equity valuations fall while yields on low-risk bonds rise.

In other markets, Europe’s Stoxx 600 stock index (.STOXX) rose 1% and Britain’s FTSE 100 rose 0.8%.

Futures contracts tracking the performance of Wall Street’s S&P 500 stock index (.SPX) indicated the blue-chip equity benchmark would open 0.5% higher later.

Among currencies, the euro added 0.5% against the dollar.

Sterling rose 0.4% after a revision of official data on Friday showed Britain’s economic performance since the start of the COVID-19 pandemic was stronger than previously thought.

Later on Friday, the latest release of the US personal consumption expenditure price index will provide a more complete picture of inflation trends in the world’s largest economy.

Investors will turn their attention to Washington, where the Democratic-led U.S. Senate on Thursday advanced a bipartisan suspension funding bill aimed at averting the fourth partial government shutdown in a decade.

“People are getting used to partial shutdowns, but if it lasts and stocks are raised the economic consequences will start to increase,” said Nordea chief market strategist Jan van Gerich, adding that the dollar could suffer if no agreement is reached.

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The dollar index was down 0.5% at 105.69, but touched a 10-month high of 106.84 earlier this week.

In Asia, the Japanese yen was at 149.08 per dollar, a slight respite from recent declines that have put markets on alert for possible currency intervention.

MSCI’s index of Asian shares outside Japan ( .MIAPJ0000PUS ) rose 1.2% on Friday as Chinese markets closed for a holiday.

Oil prices rebounded after a brief pause in the rally as traders weighed expectations of a supply increase against forecasts of positive demand from China during the Golden Week holiday in Russia and Saudi Arabia.

U.S. crude was up 0.5% at $92.16 a barrel, while Brent was up 0.4% at $95.75.

Reporting by Naomi Rovnik and Tara Ranasinghe in London and Ankur Banerjee in Singapore; Editing by Alexander Smith and Anil de Silva

Our Standards: Thomson Reuters Trust Principles.

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Senior correspondent for the London Markets Group covering European sovereign bond markets and larger macro and financial themes.

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