Stocks mostly advance as investors regain some optimism

LONDON — European and Asian stocks mostly advanced on Monday as investors tentatively regained some optimism following the heavy losses in the financial markets last week on fears that rising interest rates could spark a recession.

London stocks won 0.9 per cent, with rising crude prices supporting the share prices of energy firms BP and Shell.

Paris added 0.4 per cent but Frankfurt slipped 0.3 per cent. 

Tokyo and Shanghai also advanced but Hong Kong nudged lower. The dollar traded mixed.

Wall Street was closed for the Independence Day holiday.

'Sliver of optimism' 

"A sliver of optimism has broken through on global markets at the start of the week," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

Europe's investors on Friday absorbed news of record-high eurozone inflation that reinforced expectations of a major European Central Bank interest rate hike in July.

Markets have suffered sharp losses in recent weeks on fears that global rate hikes — aimed at fighting soaring inflation — could send economies into a downturn.

"Overall caution is still the name of the game as investors nurse wounds from a bruising first half of the year," Streeter said.

City Index analyst Fawad Razaqzada cautioned that global markets might yet have further to fall.

'Pinch of salt' 

"Nothing has changed fundamentally to suggest the markets have bottomed out," Razaqzada said.

"It is a quiet day with the US out and economic calendar light. So anything we see today should be taken with a pinch of salt."

Chris Beauchamp, chief market analyst at online trading platform IG, said investors were also watching what US President Joe Biden does as some of the punishing tariffs imposed under Donald Trump start to expire on July 6.

The imposition of tariffs to protect US manufacturers from what Washington said were unfair Chinese trade practices was politically popular.

But with US inflation now at 40-year highs, Biden is scrambling to find ways to relieve price pressure and has said that lifting some tariffs is under consideration. 

"A potential easing of China tariffs by the US might be the kind of thing to give equities a much-needed break," said Beauchamp.

"President Biden hopes that a rollback of restrictions might give a lifeline to both economies, as well as repair some of the diplomatic fallout from China's pro-Russian stance over the Ukraine war," he added.

Back in Asia, data showing a flare-up of fresh COVID-19 cases in China revived concerns about the government's policy of locking down towns and cities to eradicate the disease, despite the economic cost.

The jump in new COVID cases weighed on sentiment among investors who fear a return to the painful lockdowns in major cities including Shanghai, which hammered the world's number-two economy.