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World equity markets hit new highs on US rate cut optimism

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European shares surged 0.3%, while Japan’s Nikkei and broader Topix also logged record levels

World equity markets hit new highs with optimism about a US rate cut underpinning sentiment ahead of key jobs numbers later on Friday, while the euro reached a three-week high ahead of French elections this weekend.

Sterling and UK stocks were up as Britain’s Labour Party was set for a landslide poll victory after 14 years of Conservative rule.

The market focus in Europe was quickly shifting from the UK election – where Thursday’s vote outcome was widely expected – to Sunday’s second-round election in France. French stocks have recovered after they were sold off sharply following the surprise election announcement last month. The euro has benefited from renewed US rate-cut hopes.

Trading was subdued a day after the US July 4 holiday but is expected to pick up after the release of the June US non-farm payrolls (NFP) report.

We are in the summer holiday sweet spot for markets, with investors focused on inflation coming down to target in big economies, said Guy Miller, chief market strategist at Zurich Insurance Group.

That, along with softer US data, is positive for the inflation outlook and that means rate cuts are back on the cards again, he added.

MSCI’s world stock index hit a new record high. It was last up 0.07%. European shares surged 0.3%, while Japan’s Nikkei and broader Topix also logged record levels.

Trade in US stock futures indicated a slightly positive open for Wall Street.

Following the UK election result, London’s FTSE 100 index gained 0.38% at the open. The yield on 10-year British government bonds or gilts declined 3 bps to 4.17%, largely in line with other European markets and sterling advanced to almost $1.2779.

A landslide victory provides the sort of clarity and stability that equity markets need in an increasingly volatile world, according to Ben Ritchie, head of developed market equities at Abrdn.

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