Stocks hover above bear territory, German Ifo surprises

A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying Shanghai Composite index, Nikkei index and Dow Jones Industrial Average outside a brokerage in Tokyo, Japan, March 7, 2022. REUTERS/Kim Kyung-Hoon

LONDON, May 23 (Reuters) – Stocks hovered just above bear market territory on Monday as economic fallout from the war in Ukraine and persistently high inflation capped gains in equity benchmarks.

Oil rose, gold extended its recent gains, but the dollar slipped as investors cut their bets on further advances in the U.S. currency from rising interest rates.

Investors in Europe drew comfort from the S&P 500 index (.SPX) on Wall Street ending Friday just clear of bear market territory, meaning down 20% from its Jan. 3 record high close. read more

The MSCI all country index (.MIWD00000PUS) was up 0.16%, still down nearly 18% from its record high in January.

The S&P index suffered its seventh successive weekly fall for the first time since the dotcom bubble burst in 2001, Deutsche Bank said in a note.

“For what it’s worth the Dow saw the first successive 8th weekly decline since 1923 which really brings home the state of the current sell-off,” Deutsche Bank said.

S&P 500 futures were up 0.7%, indicating a steady open in New York, though analysts sounded a note of caution.

“I don’t think we have reached rock bottom yet, it’s a bear market rally. The market is still pretty concerned about sticky inflation,” said Michael Hewson, chief markets analyst at CMC Markets.

The STOXX index (.STOXX) of 600 European companies rose 0.7% to 435.7 points, down about 13% from its January record high.

U.S. stock markets have been harder hit than Europe because they were more overvalued, and the U.S. Federal Reserve is being more aggressive in prioritising the fight against inflation over other factors, Hewson said.

“We haven’t had that extent of hawkishness from the Bank of England or the European Central Bank, and I think that’s why the losses in Europe have been slightly more modest,” Hewson said.

ECB President Christine Lagarde said on Monday there could be an interest rate “lift-off” at its meeting in July. read more

European resilience was highlighted by Germany’s Ifo business climate index for March unexpectedly rising to 93 in May, defying market expectations of a fall to 91.4.

“The gradual return of optimism continues but only if the focus is limited to the very short run,” ING bank said.

The German DAX blue chip index (.GDAXI) was up 1%.

The World Economic Forum holds its first in-person meeting in two years in Davos, Switzerland over the coming four days, with central bankers and the International Monetary Fund participating in panels on the outlook for economies and inflation.

PEAK DOLLAR?

The dollar index , which tracks the U.S. unit against a basket of currencies of other major trading…