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Global stocks rise and debt markets diverge as traders weigh growth outlook

Global stocks rose on Monday, supported by gains for tech shares, while government bond markets dived as traders weighed the economic implications of the war in Ukraine.

The top 100 stocks on Wall Street’s technology-heavy Nasdaq Composite index added 1.1 per cent, led by Chinese companies Pinduoduo, JD.com and Baidu. The moves followed sharp climbs earlier in the day for Hong Kong technology shares, after the China Securities Regulatory Commission, Beijing’s top financial watchdog, said on Saturday it would change confidentiality laws that prevented its overseas-listed companies from providing sensitive financial information to foreign regulators .

The US Securities and Exchange Commission had said last month that China’s largest company had three years to provide detailed audit documents or face being delisted, accelerating a sell-off in Chinese technology stocks listed in the US and Hong Kong.

The benchmark S&P 500 index added 0.3 per cent on Monday.

Across the Atlantic, Europe’s regional Stoxx 600 share index — which is down more than 5 per cent for the year so far, but has erased losses incurred since Russia invaded Ukraine in late February — added 0.7 per cent, with a 2 per cent gain for the Stoxx technology sub-index.

In debt markets, the yield on Germany’s 10-year Bund, which moves inversely to its price and is a benchmark for eurozone borrowing costs, fell 0.07 percentage points to 0.49 per cent.

Analysts expect central banks in Europe and the US to tighten monetary policy further to curb persistently high levels of inflation. But the central banks face the challenge of attempting to slow price growth without inducing an economic downturn.

“We have to be humble and say that the range of possible [economic] The outcomes, given the war, and the inflation outlook, is really quite wide,” said Kasper Elmgreen, head of equities at Amundi. “Eurozone growth is coming down, but a recession isn’t obvious because consumer and business balance sheets are quite strong.”

Monday’s Bund moves came as the BDI, Germany’s main business lobby, warning that the “economic outlook looks very bleak” because of the impact from the Ukraine war on consumer confidence and investment, as well as supply chain bottlenecks.

Agnès Belaisch, chief European strategist at Barings, also noted that a lack of liquidity in Europe’s sovereign market meant that individual trade debt motivated by “the intensification of tone from the EU towards Russia” were having a “strong impact”.

In the US, government debt came under fresh pressure on Monday. The Treasury yield curve is now at its most inverted since 2007, when measured by the difference in two- and 10-year borrowing costs.

US government bonds recorded their worst quarter on record in the first three months of this year as traders looked ahead to a series of rapid Federal Reserve interest rate rises.

The yield on the two-year Treasury note added 0.03 percentage points on Monday to 2.46 per cent. This yield, which is sensitive to interest rate changes, last week moved above that of the 10-year for the first time since 2019. The yield on the 10-year note — a benchmark for borrowing costs worldwide, which moves with inflation and growth expectations — rose 0.06 percentage points to 2.38 per cent.

The inversion of this closely watched portion of the yield curve is typically perceived as a sign of a coming recession. Yet economists and policymakers are undecided about whether the Fed’s huge pandemic era bond purchasing scheme may have distorted the bond market, skewing yields.

Aneta Markowska, chief financial economist at Jefferies, said there was “little evidence that we are in a late-cycle economy”, as recessions tend to coincide with periods of “corporate restructuring, triggered by significant margin compression”.

“Margins have only begun to contract and are still close to cycle highs,” she added. “This does not look like a corporate sector that’s about to embark on a cost-cutting campaign.”

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