LONDON: World stock markets mostly rose Monday, with Tokyo leading the way as a win for Japan's ruling party in a weekend general election fuelled hopes it will push ahead with a fresh stimulus, although Hong Kong was hit by data showing further weakness in China's economy.
The yen neared a four-year low against the dollar with Japan seemingly not on course to tighten monetary policy in the short term, in contrast to the Federal Reserve which this week could announce plans to begin tapering its pandemic-fuelled stimulus support.
"European markets are following the Japanese lead after a Liberal Democrat majority helped drive the Nikkei higher," noted Joshua Mahony, senior market analyst at IG trading group.
Tokyo's main stocks index closed up 2.6 percent after Prime Minister Fumio Kishida won a strong majority in the weekend poll, giving him the freedom to push through a big spending programme to kick-start the stuttering economy.
Tokyo's key Nikkei index up more than 2% as Japan PM holds power
Investors were looking ahead to the Federal Reserve, which this week is expected to unveil a timetable for tapering its vast bond-buying stimulus programme.
A statement by Fed boss Jerome Powell following the monetary policy meeting will be closely followed for an idea about when the US central bank will start hiking interest rates.
News that inflation had hit a 30-year high in the United States and a 13-year peak in the eurozone added to long-running concerns that price rises are in danger of running out of control, and piled more pressure on central banks to tighten monetary policy.
"Given (the beginning of tapering) is well expected, more interest is likely to be in Chair Powell's press conference and whether this hints the Fed is becoming less comfortable with the inflation picture and whether they are starting to see the case for multiple hikes in 2022 as the market is pricing," said National Australia Bank's Rodrigo Catril.
The Bank of England is tipped to lift rates this week, following in the footsteps of other financial authorities in South Korea, New Zealand and Singapore, among others.
While investors are coming to terms with the prospect of rising borrowing costs, stock markets continue to press higher, with all three main indices on Wall Street ending at records on Friday, thanks to a largely healthy earnings season.
"Having been bullish on equities it feels right to turn a touch more cautious this week," said Chris Weston at Pepperstone Financial.
"Although, the fact that equities have held up so well considering the rapid repricing of interest rates is certainly a positive."
Hong Kong and Shanghai did fall Monday however after China released data showing factory activity contracted more than expected in October owing to a supply crunch, rising input costs and new lockdowns to fight another Covid outbreak.
The reading will add further pressure Beijing to provide more support for the world's number two economy, but authorities have to tread a fine line as they battle to contain inflation.
Key figures around 1115 GMT
London - FTSE 100: UP 0.5 percent at 7,275.85 points
Frankfurt - DAX: UP 0.9 percent at 15,822.33
Paris - CAC 40: UP 0.9 percent at 6,894.07
EURO STOXX 50: UP 0.7 percent at 4,280.27
Tokyo - Nikkei 225: UP 2.6 percent at 29,647.08 (close)
Hong Kong - Hang Seng Index: DOWN 0.9 percent at 25,154.32 (close)
Shanghai - Composite: DOWN 0.1 percent at 3,544.48 (close)
New York - Dow: UP 0.3 percent at 35,819.56 (close)
Dollar/yen: UP at 114.28 from 114.03 yen at 2030 GMT Friday
Pound/dollar: DOWN at $1.3654 from $1.3685
Euro/dollar: UP at $1.1571 from $1.1556
Euro/pound: UP at 84.75 pence from 84.44 pence
Brent North Sea crude: UP 0.9 percent at $84.44 per barrel
West Texas Intermediate: UP 0.5 percent at $83.96 per barrel