Global stocks sag amid 'higher for longer' rate view

Global stocks have slid to two-month lows while the dollar rose to its highest in more than five months after stronger-than-expected US retail sales further reinforced the view the Federal Reserve might not rush to cut interest rates in 2024. Geopolitical tensions in the Middle East kept risk appetite in check, supporting gold and oil, while data showed China's economy grew 5.3 per cent in the first quarter year-on-year, easily beating analysts' expectations. The MSCI All-World index on Tuesday touched its lowest since February as a drop in shares in Europe sent the regional STOXX 600 down 1.3 per cent, set for its biggest one-day fall in six months, while US stock futures were up about 0.1 per cent on the day. US stocks closed sharply lower on Monday as a jump in Treasury yields added to the drag on sentiment from rising tensions between Iran and Israel. Underscoring the cautious mood, a number of measures of volatility have picked up in the last week. The VIX index on Monday neared six-month highs, while long-dormant currency volatility has also picked up. "There is certainly not much in the news flow to inspire risk-taking and there is a growing list of factors to refrain from buying and to manage exposures," said Chris Weston, head of research at Pepperstone. Also, a survey of asset managers by Bank of America showed investors are at their most bullish in more than two years this month and have upped their allocations to risk assets such as stocks and commodities at the expense of bonds and cash. Optimism has been running so high lately, that when the survey was conducted between April 5-11, 36 per cent of respondents said they expected a "no landing" scenario for the global economy, up from just seven per cent at the start of the year, Bank of America said. The survey was also conducted before last week's US consumer inflation figures that showed price pressures remain stubbornly high, right as geopolitics threaten to muddy the outlook for the broader economy. Traders now anticipate about 45 basis points of cuts in 2024, down from more than 160 bps in expected cuts at the start of the year. Government bonds, which usually benefit from investor unease, have come under pressure. The yield on 10-year Treasury notes was last flat at 4.6303 per cent, having hit a five-month high of 4.663 per cent on Monday. The dollar edged up against a basket of major currencies , supported in part by higher Treasury yields, while gold traded above $2,300 an ounce. On the geopolitical front, Israelis awaited word on how Prime Minister Benjamin Netanyahu would respond to Iran's first-ever direct attack on their country. Oil dipped but remained near $US90 a barrel as investors weighed up how supply from the Middle East might be affected, should the situation deteriorate further. Brent crude futures were last down 0.2 per cent at $US89.89, having gained more than 10 per cent in the past month alone. In currencies, the strength of the dollar kept the yen pinned near 34-year lows about 154.66, where it has traded in the past few days. Investors believe Japanese monetary authorities could even intervene in the markets to prop up the yen if it continues to slide, as the Indonesian central bank did on Tuesday to support the rupiah, which hit four-year lows.