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European shares rise as traders assess future path of monetary policy


European and Asian stocks rose on Friday after the chair of the US central bank talked down the possibility of using extra large rate hikes to tame inflation.

The regional Stoxx Europe 600 index added 0.6 in early dealings, while London’s FTSE 100 rose 0.8 per cent. In Asia, Hong Kong’s Hang Seng index added 2.4 per cent and the Nikkei 225 in Tokyo also closed 2.6 per cent higher.

Despite Friday’s gains, global stocks were on track for their sixth straight week of falls, driven lower by worries about soaring living costs in the west and an economic slowdown in China.

Fears have also been stalking markets about the Federal Reserve, whose monetary policy is followed by central banks worldwide, using jumbo rate rises of 0.75 percentage points to tackle inflation but causing a recession in the process.

In an interview with Marketplace on Thursday evening, however, Fed chair Jay Powell said “it would be appropriate for there to be additional 50-basis point increases at the next two meetings,” if the economy “performs about as expected.”

Powell’s comments “have supported risk appetite,” said Deutsche Bank strategist Jim Reid, by reducing fears of the Fed “moving towards 75 bps in the aftermath of [this week’s] stronger than expected CPI reading.”

Data on Wednesday showed US consumer price inflation rose at an annual pace of 8.3 per cent in April, staying stubbornly close to a 40-year high of 8.5 per cent reached in the previous month.

A recent rally in US government bonds also reversed on Friday as haven buying, driven by recession fears, faded. The yield on the 10-year Treasury note, which moves inversely to the price of the benchmark debt security, rose 0.07 percentage points to 2.89 per cent.

Futures markets implied Wall Street’s technology-heavy Nasdaq 100 share index would gain 1.3 per cent in early dealings.

Contracts tracking the broad S&P 500, which almost entered a bear market on Thursday, defined as 20 per cent below a recent peak, rose 0.9 per cent.



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