Stocks set for best week in 6 years

Global Stock Markets

World shares were set for their best week of gains in six years on Friday after two consecutive weeks in the red, shrugging off a rise in global borrowing costs while the dollar hit its lowest since 2014.

MSCI’s world index of stocks, which tracks shares in 47 countries, was up 0.3 percent after European bourses opened. After suffering its biggest weekly drop since August 2015 last week, the index is now on track for its best showing since early December 2011.

Some investors have been puzzled at the quick rebound, which has coincided with a rise in bond yields on signs that inflation is starting to creep up globally.

The argument commonly offered by economists has been that historically, it is not unusual for stocks and bond market borrowing costs to rise in tandem in a rapidly expanding economy.

Yields across the euro area were mostly steady, although Germany’s benchmark Bund was within sight of 2-1/2-year highs and set for its biggest weekly rise in eight weeks.

Investors were also watching for a sovereign debt rating update on Greece from Fitch, set for release later in the day.

European shares were also 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 percent and Germany’s DAX added 0.5 percent, while Italy’s FTSE MIB was up 1 percent.

The pan-European benchmark is up 3 percent so far this week, set for its best week since December 2016, but still down around 6 percent from the 2-1/2-year peak it hit in January.

With many Asian markets closed on Friday for the Lunar new year, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3 percent.

Japan’s Nikkei rose 1.2 percent, 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.

Equity investors have drawn a degree of reassurance from a fall in the VIX index - a measure of implied volatility on the S&P 500 index, also known as Wall Street’s “fear gauge”.

The index dropped below 20 for the first time since it spiked to a 2-1/2-year high of 50.3 last week, a jump that caused massive losses among investors who bet equity markets would stay stable on a combination of solid economic growth and moderate inflation.