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US stocks rise and dollar falls after seven weeks of equity losses

US stocks rallied on Monday, while the dollar weakened, after growth fears and high inflation left the S&P 500 nursing its seventh consecutive week of losses.

The broad S&P gauge was up 1.9 per cent by the early afternoon in New York, while the tech-heavy Nasdaq Composite added 1.5 per cent. This followed a late turnround on Wall Street on Friday when the S&P briefly entered bear market territory — defined as a 20 per cent drop from a recent peak — before rebounding to close 0.01 per cent higher.

Meanwhile, the dollar index, which measures the greenback against six major currencies, dropped 0.9 per cent.

Global equities have dropped this year as inflation — driven by economies reopening from coronavirus shutdowns and Russia’s invasion of Ukraine disrupting fuel and food prices — hit multi-decade highs in many countries and central banks moved to raise interest rates in response.

“Clients are mainly asking us about the risk of a global recession and the stickiness of inflation,” said James Ashley, head of international market strategy at Goldman Sachs Asset Management.

“Our view is that, globally, we can’t avoid a slowdown but we can avoid a recession.”

Investors selling out of equities, as well as expectations of a long string of rate rises by the US Federal Reserve, have in recent weeks pushed the dollar index to 20-year highs. But analysts are now querying whether the reserve currency’s rally has gone too far.

The euro rose 1 per cent per cent against the US currency to just under $1.07, bouncing on both dollar weakness and the European Central Bank president Christine Lagarde signalling the end of negative interest rates in the eurozone within months. Sterling added 0.7 per cent to just under $1.26.

“The market has hoarded a huge amount of dollars in recent months,” Deutsche Bank strategist George Saravelos said, “leading to a very substantial dollar overvaluation.”

Saravelos added that dollar buying in the past six months has been “equivalent to” the level of inflows seen during the 2008 collapse of Lehman brothers and the coronavirus-induced market ructions of March 2020.

“The deterioration in global growth that is priced in [to the dollar] is not only large, but also bigger than what is priced in by other asset classes,” he said.

Government debt prices also softened on Monday, as risk aversion moderated. The yield on the 10-year US Treasury note, which moves inversely to the price of the benchmark debt security, added 0.07 percentage points to 2.86 per cent. Germany’s equivalent Bund yield rose by the same amount to 1.02 per cent.

In Europe, the Stoxx 600 share index added 1.3 per cent, while London’s FTSE 100 rose 1.7 per cent. UK-listed mining shares rallied after Chinese policymakers pledged new steps to support the nation’s pandemic-blighted economy.

Earlier in the session, Hong Kong’s Hang Seng share index had closed 1.2 per cent lower after the city of Beijing reported rising coronavirus cases, increasing fears of further social restrictions under China’s zero-Covid policy. The Hang Seng has lost around a tenth of its value since early March. Mainland China’s CSI 300 dropped 0.6 per cent on Monday, while the Nikkei 225 in Tokyo added 1 per cent.

Brent crude, the oil benchmark, added 0.5 per cent to just over $113 a barrel.

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