3 reasons the global rally can keep going

European equities marched toward their longest winning streak in five months on Tuesday. The risk rally’s back on and most of the credit’s going to easing of concern around Hurricane Irma and North Korea. There’s likely more to it than that. Consider the latest price data from China.

They indicated a surge in inflation that suggests global growth is on the march and should prolong the rebound in commodities. At the same time, loose financial conditions -from persistently low interest rates to record equity prices and a weak dollar -have created a feedback loop that’s intensified the hunt for yield.

European equities marched toward their longest winning streak in five months on Tuesday after both the S&P 500 Index and MSCI’s World Index posted record highs a day earlier. “We have solid global growth and some of the easiest financial conditions in history,” Andrew Sheets, Morgan Stanley’s chief crossasset strategist, wrote in a client note.”Hooray.”

China inflation
China’s producer prices surged 6.3 per cent in August from a year earlier, ahead of expectations by a margin comfortable enough to drive speculation that the world’s second-largest economy may spark momentum across developed and emerging markets alike.

An uptick in China’s producer prices often spurs better-than-expected economic data in Europe and the US, potentially adding fresh impetus to the global rally.

Energy fillip
The surge in commodities -copper and oil are up roughly 20 per cent since their second-quarter lows, and iron ore has surged even more -also confirms that the outlook for global stocks has solid foundations, according to JPMorgan Chase & Co strategists.

“The renewed strength in commodities is reinforcing the case for healthy third-quarter results,” strategists led by Mislav Matejka wrote in a note. The bulk of bullish earning projections for the second-half of the year come from the energy and materials sector, they said.

Monetary mania
The signs of accelerating global growth come as liquidity conditions have loosened thanks to the dollar’s retreat, lower Treasury yields and the relative resilience of credit and equity markets.

Investors in the $14.1 trillion Treasuries market aren’t getting compensation for time risk, forcing money managers to pour more cash into risky assets. The extra compensation to own 10-year US Treasuries instead of shorter-maturity obligations, for example, a spread known as the term premium, has fallen to October lows. Loose liquidity conditions are giving ammunition to credit bulls from the US to emerging markets.

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