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Global equities on course for first back-to-back monthly gains since 2021

Global stocks are on track for their first back-to-back monthly gains since the summer of 2021 as investors bet that inflation has peaked and dipped back into equity markets, which were hammered in the first half of the year.

European stocks rose on Wednesday, with the regional Stoxx Europe 600 up 0.4 per cent in early trading and London’s FTSE 100 gaining 0.3 per cent.

The moves come as the FTSE All-World index has risen 11 per cent since the start of October and the S&P 500 up more than 10 per cent over the same period.

Commodity prices, factory gate prices and inflation expectations have all begun to slide from their record levels in recent weeks, suggesting to some that global inflation has peaked and the pace of headline price growth is set to slow in 2023.

Analysts at Bank of America believe that with central bank support ebbing away and a recession looming, some investors may have gotten ahead of themselves. “Markets are in denial, particularly equities,” they said in a note.

Contracts tracking Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq 100 added 0.2 per cent and 0.3 per cent, respectively, ahead of a speech by Federal Reserve chair Jay Powell, with investors hoping for hints about the path of the central bank’s interest rate policy.

“Clearly Fed action is going to be the driving factor for every asset class over the coming weeks,” said Neil Birrell, chief investment officer at Premier Miton, an asset management company.

Investor attention will focus on Powell’s comments at The Brookings Institution later on Wednesday, where he is expected to set out the Fed’s thinking on inflation and its effects on the US economy.

New York Fed president John Williams and St Louis Fed president James Bullard earlier this week suggested that despite its aggressive monetary tightening campaign and cooler than expected consumer price figures in October, the Fed had yet a way to go in its fight against inflation.

Investors in the futures market have priced in a roughly 70 per cent chance that the central bank will deliver a 0.5 percentage point rise when it next meets in December, after four consecutive 0.75 percentage point increases.

“It was only a few weeks ago that we were hearing stories out of the Fed about the policy lag and how things were perhaps tighter than people thought,” Birrell said, referring to the time it takes for changes in monetary policy to influence the real economy.

“Now we’ve gone the other direction, because the market maybe read too much into the October CPI [data] and dovish talk from Fed officials,” he added.

In Asia, Hong Kong’s Hang Seng index gained 2.1 per cent on Wednesday after rising sharply the day before, as investors bet that China would push ahead with reopening plans following anti-lockdown protests. China’s CSI 300 added 0.1 per cent.

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