Stocks and US futures trimmed their advance and European bonds tumbled after hotter-than-expected German inflation numbers added to pressure for action from central bank policymakers to tame rising prices.

European equities pared a fourth day of gains, still on course for the longest winning streak since March. Luxury stocks outperformed Monday as China’s reopening plans boosted sentiment. Shares in theater chain operator Cineworld Group Plc soared after the movie “Top Gun: Maverick” topped the Memorial Day weekend box office.  Bitcoin posted its biggest gain in two weeks, rising above US$31,000 for the first time since May 16. 

Nasdaq 100 contracts and S&P 500 futures rose in a sign the bounce in US stocks may have further to run after Wall Street’s best week since November 2020. The S&P 500 wiped out its May losses and snapped a string of seven weekly declines as institutional investors rebalanced portfolios into the end of the month.

The dollar slipped for a third day versus major peers as havens lost their appeal amid the slightly improved mood. Cash Treasuries aren’t trading because of the Memorial Day holiday. 

Traders are pondering whether the bottom of the selloff is near as investors have been buying the dip after one of the worst starts to the year for equities. However, a wall of worries remains from hawkish central banks underscoring fears of a recession, escalating food inflation from the war in Ukraine and China’s lockdowns stunting economic activity.  

“We are in the middle of a bear-market rally,” Mahjabeen Zaman, Citigroup Australia head of investment specialists, said on Bloomberg Television. “I think the market is going to be trading range-bound trying to figure out how soon is that recession coming or how quickly is inflation going down.” She added that Treasury yields are set to peak this year.

Meanwhile, German inflation hit another all-time high, adding urgency to the European Central Bank’s exit from crisis-era stimulus after numbers from Spain also topped economists’ estimates. The reports came 10 days before a crucial ECB meeting where officials are set to announce the conclusion of large-scale asset purchases and confirm plans to raise interest rates in July for the first time in more than a decade.

Money markets wagered on 113 basis points of rate increases by year-end, up three basis points since Friday. German bonds held declines, with benchmark 10-year yields eight basis points higher at 1.05 per cent.

Traders will be looking to the US payroll numbers later this week to gauge the Federal Reserve’s tightening path as it strives to rein in inflation. Meanwhile, the Fed is set to start shrinking its US$8.9 trillion balance sheet starting Wednesday. 

Federal Reserve Governor Christopher Waller said he wants to keep raising interest rates in half-percentage point steps until inflation is easing back toward the US central bank’s goal. “I support tightening policy by another 50 basis points for several meetings,” he said in remarks prepared for delivery on Monday in Frankfurt. “In particular, I am not taking 50 basis-point hikes off the table until I see inflation coming down closer to our two per cent target.” 

Oil climbed to a two-month high in response to the easing of Chinese lockdowns and as the European Union worked on a plan to ban imports of Russian crude.

In Asia, Japanese and Hong Kong equities led gains. China’s yuan outperformed after the nation reported fewer COVID-19 cases in Beijing and Shanghai. China’s reopening moves prompted a gauge of emerging-market stocks to rise to the highest since May 5. 

Here are some key events to watch this week:

• US markets closed for Memorial Day Monday
• EU leaders start a two-day special meeting in Brussels Monday with the war in Ukraine, defense, inflation, energy and food security on the agenda
• China PMI Tuesday
• Euro zone CPI Tuesday
• The Federal Reserve is set to start shrinking its US$8.9 trillion balance sheet Wednesday
• The Fed releases its Beige Book report on regional economic conditions Wednesday
• New York Fed President John Williams, St. Louis Fed President James Bullard speak at separate events Wednesday
• OPEC+ virtual meeting Wednesday
• Cleveland Fed President Loretta Mester discusses the economic outlook Thursday
• US May employment report Friday
• The UN’s Food and Agriculture Organization releases its monthly food price index at a time of maximum concern about global supplies on Friday

Some of the main moves in markets:

Stocks

• Futures on the S&P 500 rose 0.5 per cent as of 4:28 p.m. New York time
• Futures on the Dow Jones Industrial Average rose 0.4 per cent
• The Stoxx Europe 600 rose 0.6 per cent
• The MSCI World index rose 0.6 per cent
• Futures on the Nasdaq 100 rose one per cent
• The MSCI Asia Pacific Index rose 1.9 per cent
• The MSCI Emerging Markets Index rose 2.1 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 per cent
• The euro rose 0.4 per cent to US$1.0778
• The British pound rose 0.2 per cent to US$1.2655
• The Japanese yen fell 0.3 per cent to 127.55 per dollar
• The offshore yuan rose 0.7 per cent to 6.6727 per dollar
• The Mexican peso rose 0.1 per cent to 19.5531 per dollar
• The Brazilian real fell 0.4 per cent to 4.7503 per dollar

Bonds

• Germany’s 10-year yield advanced nine basis points to 1.06 per cent
• Britain’s 10-year yield advanced seven basis points to 1.99 per cent

Commodities

• West Texas Intermediate crude rose 1.8 per cent to US$117.17 a barrel
• Gold futures were little changed