Published : 1 week ago, on 29/11/2024

By Naomi Rovnick

LONDON (Reuters) -Global shares headed on Friday for their biggest monthly gains since May on hopes for strong U.S. growth, while Japanese rate hike bets and shifting euro zone monetary policy expectations put the dollar on track for its first weekly loss in four.

MSCI’s broad gauge of world stocks traded steady to hold its 3.2% monthly gain, led by Wall Street’s S&P 500, and U.S. tech shares benefiting from an artificial intelligence investing craze.

Donald Trump’s Nov. 5 election victory and pledges of tax cuts, deregulation and import tariffs have supercharged investors’ expectations for U.S. and Wall Street stocks to keep outperforming other regions.

But while futures markets implied the S&P would rise on Friday, to end November more than 5% higher, the dollar dropped from its high perch as speculation about Japanese rate hikes drove a rebound for the weakened yen.

The dollar was most 0.9% lower at 149.93 yen after touching 149.53 yen in early European trade for the first time since Oct. 21 after Japan’s government finalised a stimulus budget and inflation in Tokyo came in hotter than economists expected.

The dollar index, which measures the currency against peers, was also poised to end the week 1.4% lower thanks to a sudden rebound for the euro, which had been lurching towards the key $1 marker on tariff fears and a bleak euro zone outlook.

Trump has pledged immediate 25% tariffs on all products from Mexico and Canada when he takes office in January and an additional 10% on imports from China, a major trading partner for Asian economies and euro zone export powerhouse Germany.

President-elect Trump has called out Canada, Mexico, and China for now, but Europe is not far down the list,” strategists at BCA Research said, recommending investors limit their exposure to European stocks and favour German government bonds.

The euro has recovered from crushing losses since the Nov. 5 U.S. election to gain 1.4% this week, to $1.059, supported by data on Friday showing euro zone inflation had higher, limiting bets for deep European Central Bank rate cuts.

Europe’s STOXX share index also held steady on Friday, heading towards a 0.3% monthly gain, as Asian and emerging market stocks sustained the deepest blows from tariff fears.

Indonesian shares have dropped 5% during November in their worst month since September 2020 while South Korean shares have slumped 3.9% lower to mark a five-month losing streak, the longest since 2021.

France’s CAC 40 share index has been the worst performing major European market this month, down 2.4% as Michel Barnier’s fragile coalition government struggled to win support for its attempts to shrink the nation’s vast budget deficit.

Far-right leader Marine Le Pen, whose national rally won a strong share of vote in June’s snap elections, has this week ramped up threats to topple Barnier’s administration and sparked a rush out of French government debt.

France’s 10-year yield on Friday traded at around 2.946%, just a fraction below Greece’s benchmark borrowing costs at 2.956% and having touched their highest over Germany’s since 2012 earlier in the week.

The 10-year German bund yield yield was steady at 2.12% on Friday morning after falling 27 bps this month as the debt rallied for four weeks in a row.

Traders have fully priced a 25-bps European Central Bank rate cut to 3% in December, although hawkish remarks from board member Isabel Schnabel this week dampened speculation about a 50 bps reduction.

Ten-year U.S. Treasury yields, at 4.24% on Friday, are down 17 bps this week after Trump nominated hedge fund manager and Wall Street veteran Scott Bessent for Treasury Secretary, easing fears about excessive U.S. borrowing.

While Trump’s import tariffs could boost U.S. inflation, Federal Reserve officials have turned cautious on rate cuts, though markets still anticipate they will reduce the funds rate, currently 4.5%-4.75%, by a quarter-point next month.

Brent crude oil dropped 0.4% on Friday to $72.13 a barrel, heading for a more than 3% weekly drop as the Israel-Hezbollah ceasefire deal in Lebanon eased supply fears, while gold dropped 0.5% on the day to $2,655 an ounce.

(Reporting by Naomi Rovnick, additional reporting by Stella Qiu in Sydney and Ankur Banerjee in Singapore; editing by Mark Heinrich and David Evans)