Global equities rose on Monday and the U.S. dollar was pinned near a five-week low on hopes of a possible slowdown in U.S. monetary tightening after sharp interest rate hikes in June and July.

News that authorities in Shanghai would roll back many restrictions on businesses resuming work from Wednesday has helped soften the mood, easing a citywide lockdown that began two months ago. .

MSCI’s benchmark index for global stocks rose 0.6% to its highest level in more than four weeks at 07.45 GMT, driven by a positive open in Europe and strong gains in Asia overnight. . The index is up 0.4% so far this month.

The pan-European benchmark STOXX 600 gained 0.7%, while the Japanese Nikkei gained 2.2% and Chinese blue chips gained 0.7%.

Although Wall Street was closed for Memorial Day, US futures contracts were trading. S&P 500 e-minis rose 0.9%, after rising 6.6% last week in their best run so far this year, while Nasdaq e-minis added another 1.3% .

Investors seized on hints that the Federal Reserve, once it raises aggressively over the next two months, may then slow its tightening.

“Talk of a pause in the Fed’s rate hike cycle does wonders for everything from stocks to bonds and – sadly – to commodities too,” said Arne Petimezas, an analyst at AFS Group in Amsterdam.

“Over the past few weeks, about 50 basis points have been removed from the Fed’s terminal rate pricing. Predictably, Fed prices suggest the Fed will shift into lower gear after the annual Jackson Hole retreat in August,” he added in a note.

The chance of a less hawkish Fed was enough to see Treasuries rebound, with yields on 10-year notes just above a six-week low at 2.743%. This is down from the peak of 3.203% on May 9.

The more stable market mood saw the safe-haven dollar and yen lower, while the euro was boosted by hawkish comments from European Central Bank (ECB) officials who announced a rate hike as early as July.

“US economic data appears to be slowing, ECB officials are eyeing even faster initial rate hikes and initial rate differentials have started to move in favor of the euro,” noted Zach Pandl, an analyst at Goldman Sachs.

“A sharp slowdown in the US economy – if not accompanied by similar weakness in Europe – could lead to a significant rebound in the euro, although the reverse is also true if US data holds up better. than expected,” Pandl added. “We see downside risks to US growth and have recommended USD/JPY put options to express this view.”

This underscores the importance of key US data this week, which includes the ISM manufacturing survey on Wednesday and the May payrolls report on Friday.

Payrolls are expected to rise by 320,000, although this is down from April, with unemployment at 3.5%.

The euro hit a five-week high and was last up 0.2% at $1.0750, after rising 1.6% last week. The dollar index fell to a new five-week low at 101.38 and was last down 0.2% at 101.50, after losing 1.3% last week.

China’s offshore yuan rose 0.85% after hitting a one-week high of 6.6548 to the dollar.

The decline in the US dollar helped gold pull out of recent lows, pushing the metal up 0.5% to $1,862 an ounce.

Oil prices were supported by expectations of stronger demand as the driving season in the United States kicks off and European Union countries negotiate whether to impose an outright ban on the Russian crude oil.

The EU failed to agree on a Russian oil embargo on Sunday, but diplomats will still try to make progress ahead of a Monday-Tuesday summit.

Brent rose 0.4% to $119.90 a barrel, while U.S. crude gained 0.6% to $115.72 a barrel.

Wayne Cole and Danilo Masoni/Reuters

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