Stocks track US rally as recovery hopes trump inflation fear

Financial stock exchange market display screen board on the street
Financial stock exchange market display screen board on the street
  • Optimism over the economic recovery helped push stock markets higher Tuesday.
  • On the corporate front, shares in Nokia were little changed after the company said it will slash up to 11% of its workforce within two years.
  • Wall Street's three main indexes chalked up healthy gains Monday with the Dow and S&P 500 hitting new all-time highs and even the Nasdaq.


Optimism over the economic recovery helped push stock markets higher Tuesday following another record on Wall Street overnight, with focus on the Federal Reserve's much-anticipated policy meeting this week.

News that several European countries had stopped administering the AstraZeneca vaccine on safety fears, dealing a blow to the continent's already stuttering inoculation programme, appeared to have little impact on sentiment.

Elsewhere, the dollar was mixed against its main rivals and oil prices slid on profit-taking after recent strong gains.

On the corporate front, shares in Nokia were little changed after the Finnish telecoms equipment maker said it will slash up to 11% of its workforce within two years.

The firm is looking to cut costs and focus on a few key areas in the face of tough competition over super-fast 5G networks.

Announcing a €600-million ($715-million) cost-cutting programme, it said it expects to become "an 80 000-85 000 employee organisation.

Fed on inflation

Across the Atlantic, the Fed's two-day policy meeting beginning Tuesday is front and centre of investors' minds as they look for its response to the rally in US bond yields that has rattled trading floors.

However, the general consensus is that policymakers will maintain their vast bond-buying scheme and keep rates at record lows until 2023.

Fed boss Jerome Powell "will rely on the short-term risks to the outlook to defend his ultra-easy monetary stance", said OANDA's Edward Moya.

"Powell will likely replay his best hits when discussing inflation, noting that price increases later in the year won't be large or persistent.

"The summertime is when inflation could rear its ugly head, so Powell should be able to push back any concerns until then," Moya added.

Expectations for a surge in activity in the second half of the year, backed by huge government rescue packages and central bank largesse, have helped power world markets to record or multi-year highs.

However, the recovery has investors growing increasingly worried about soaring inflation that could force national banks to wind down the ultra-loose monetary policies that have helped send equities higher.

US benchmark 10-year Treasury yields - a guide to future interest rates - have risen to a one-year high in recent weeks.

Still, for now the positive economic benefits were winning the tug of war with inflation fears.

Wall Street's three main indexes chalked up healthy gains Monday with the Dow and S&P 500 hitting new all-time highs and even the Nasdaq - which has suffered from a shift out of tech stocks over the past month - enjoying a healthy run-up.

As the US vaccine programme kicks on and Americans begin to get their government cash handouts as part of President Joe Biden's mega-stimulus, investors are betting that months of pent-up spending will soon be let loose on the world's top economy, a key driver of global growth.


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