Markets

GLOBAL MARKETS-World stocks pause near five-month highs, caution comes for

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Graph: Global asset performance http://tmsnrt.rs/2iaDPgn

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Graphic: World exchange rates http://tmsnrt.rs/2egbfVh

Author: Dhara Ranasinghe

LONDON, Jan 25 (Reuters) – Global stocks hovered near five-month highs on Wednesday, as signs that central banks may have to keep raising interest rates longer dampened a recent wave of optimism that aggressive monetary tightening among major central banks almost completed .

The Australian dollar jumped more than 0.7% to a five-month high after data showing inflation rose to a 33-year high of 7.8% last quarter bolstered the case for another interest rate hike by Reserve Bank of Australia (RBA) next month .

Canada’s central bank is expected to raise interest rates again later on Wednesday, with recent strong data supporting expectations for another move.

European stock trading was light, with the broad euro STOXX 600 down 0.3%. US stock futures pointed to a soft opening for Wall Street.

Globally, stocks have rallied strongly this year after falling in 2022 on expectations that inflation has peaked and US interest rate rises will ease. China’s lifting of COVID controls and the reopening of its borders further boosted investor sentiment.

MSCI’s world equity index, which has risen more than 6% this month, was mostly steady near five-month highs on Wednesday.

“Our view is that the shift in risk assets is overdone,” said Guy Miller, chief market strategist at Zurich Insurance Group.

“Broadly speaking, the problem we have is that economic conditions are getting worse and the data we’re looking at points in that direction.”

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan hit a seven-month high. Trading volume was subdued as Chinese and Taiwanese markets remained closed for the Lunar New Year holiday.

Microsoft shares gave up most of their 4% gains in after-hours trading. The tech titan’s better-than-expected results showed some strength in the face of a weak economy, but weak revenue growth signaled tougher times ahead for the sector.

Microsoft said Wednesday it was investigating a networking issue that affected multiple services.

AUSTRIA DOLLARS SURGE

In currency markets, the Australian dollar jumped to $0.7123 after the latest inflation data. The Australian currency is up nearly 2% this week and is poised for its biggest weekly jump in two months.

Investors have sharply reduced the odds that the RBA will raise its cash rate by a quarter of a point to 3.35% when it meets on February 7. Earlier, some analysts thought there was a chance that the RBA would pause its tightening campaign.

“RRA raises the cash rate by 25 basis points at the meeting and we do not believe that will change,” ING analysts said in a note.

The euro remained at around $1.0887, holding below recent nine-month highs.

Data showing that German business morale improved in January was not enough reason to push the single currency higher so far.

Germany’s Ifo institute said its business climate index rose to 90.2, in line with the consensus in a Reuters poll of analysts, up from 88.6 in December.

The New Zealand dollar fell after New Zealand reported annual inflation of 7.2% in the fourth quarter, below the central bank’s forecast of 7.5%.

Oil prices rose, with Brent crude futures up 0.4% at $86.46 a barrel after falling 2.3% in the previous session. U.S. West Texas Intermediate (VTI) crude gained 0.3% to $80.36, after falling 1.8% on Tuesday.

Gold prices fell 0.5% to $1,928 an ounce, from a nine-month high in the previous session.

(Reporting by Dhar Ranasinghe; Additional reporting by Anshuman Dag in SINGAPORE; Editing by Mark Potter)

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