LONDON: Global shares rose for the 11th day in a row to reach a fresh peak on optimism about the rollout of COVID-19 vaccines and new fiscal aid from Washington, while tensions in the Middle East drove oil to a 13-month high.
As more people are vaccinated across key markets such as the United States, and with U.S. President Joe Biden looking to pump an extra $1.9 trillion in stimulus into the economy, the so-called reflation trade has gathered steam in recent days.
On Friday, the Cboe Volatility Index, known as Wall Street's "fear gauge", ended at its lowest level for nearly a year, helping to drive a 0.4% gain for MSCI's broadest measure of world stocks on Monday.
Taking its cue from a stronger, albeit holiday-thinned, Asian session, Europe's major indexes were a sea of green in early deals, with Britain's FTSE 100 up 2.2%.
With China and Hong Kong markets closed for the Lunar New Year holiday, Japan's Nikkei led the way, climbing 1.9% to reclaim the 30,000-point level for the first time in more than three decades.
E-mini futures for the S&P 500 were also higher, up 0.5%, although U.S. stock markets are closed on Monday for the Presidents Day holiday.
Later in the week, all eyes will be on the release of minutes from the U.S. Federal Reserve's January meeting, where policymakers decided to leave rates unchanged, for hints about the likely direction of monetary policy.
Those concerned about the impact of market exuberance on the outlook for inflation will also have fresh data to parse, with Britain, Canada and Japan all due to report. Friday will also see major economies, including the United States, release preliminary February purchasing managers' indexes (PMI).
"We believe investors should prepare for bouts of volatility ahead, but regard them as opportunities rather than threats," said Mark Haefele, chief investment officer at UBS Global Wealth Management. "We recommend investors stick to their long-term financial plans, and continue to put excess cash to work."
Oil joined equity markets in pushing higher, reaching its highest level since January 2020 on hopes U.S. stimulus will boost the economy and fuel demand and after a Saudi-led coalition fighting in Yemen said it intercepted an explosive-laden drone fired by the Iran-aligned Houthi group.
Brent crude rose 1.2% to $63.15 a barrel. U.S. crude oil gained 1.2% to $60.21, just off earlier highs.
With risk assets in favour, safe havens dipped, with gold down 0.2% to $1,819 an ounce. Germany's 10-year Bund yield rose 4 basis points to a 5 1/2-month high at -0.376% and 30-year bond yields, up 20 bps so far this month, rose to an eight-month high at 0.13%. They had traded in negative yield territory earlier this month.
Switzerland's 30-year government bond yield, meanwhile, rose above 0% for the first time since early 2020.
The dollar remained near two-week lows as traders took a more cautious view of the pace of the U.S. economy's rebound. Against a basket of currencies it was last down around 0.1%.
Bitcoin, meanwhile, recovered some of its overnight weakness to trade down 1.8% at $47,801.18, below a record high of $49,714.66.
European shares ended at a near one-year high on Monday as major resource stocks benefited from expectations of a swift economic recovery, while Vivendi led gains on its planned capital distribution from Universal Music.
The pan-European STOXX 600 rose 1.3% to its highest since late February 2020, with Rio Tinto, BHP Group and Anglo American bolstering the index as copper prices leapt to a more than eight-year high.
Banks and energy stocks also climbed as a so-called "recovery trade" sparked demand for sectors that had underperformed the broader index following early 2020's coronavirus-driven crash.
Metal and oil prices rose as investors bet on fresh U.S. stimulus and major vaccine programs spurring a resurgence in commodity demand.
Vivendi SE topped the STOXX 600 with a 19.6% jump after the French conglomerate said it intended to distribute 60% of Universal Music's capital to investors.
Shares of Groupe Bollore, which has a 27% stake in Vivendi, jumped 14.6%.
Anticipation of more U.S. stimulus measures was bolstered after President Joe Biden on Friday turned to a bipartisan group of local officials for help on his $1.9 trillion coronavirus relief plan.
Historic monetary and fiscal stimulus has helped the benchmark STOXX 600 rebound about 55% since slumping to a more than seven-year low in March 2020, although it has lagged the U.S. S&P 500 due to prolonged lockdowns in Europe.
A recent Reuters poll found the euro zone economy was in a double-dip recession and that economists now expect GDP to contract 0.8% in the first quarter, reversing an earlier forecast for growth of 0.6%.
Adding to doubts over a euro zone recovery, data showed industrial production shrank more that expected in December under the weight of falling output of capital and non-durable consumer goods, confirming an economic contraction in the fourth quarter.
However, analysts said a global economic recovery was set to benefit euro zone sectors that were exposed to trade.
"New orders for manufacturing continue to grow quickly and the rest of the world continues to recover, which bodes well for the start of 1Q in terms of exports and production," ING analysts wrote in a note.
"This makes manufacturing the bright spot in an otherwise downbeat short-term outlook."
Trading volumes were thin for the day, with markets in China, Hong Kong and the United States shut for local holidays.- Reuters