World stocks have hit seven-week highs, buoyed by recent strong corporate earnings and declining expectations for hefty interest rate rises, while the US dollar slid against the yen as speculators exited suddenly unprofitable short positions.
Global shares gained seven per cent last month and bond markets rallied as investors started to look for a peak in official interest rates, given slowing economic growth.
Markets have gathered steam after last week's 75-basis-point Federal Reserve hike and comments on the economy from Fed chairman Jerome Powell.
"There's a sense of relief that the Fed have at least got an eye on slowing growth. They are not going to be pig-headed and keep hiking interest rates as the economy falls into deep, dark recession," Giles Coghlan, chief currency analyst at HYCM, said.
In addition, upbeat forecasts from Apple and Amazon on Friday pushed the S&P 500 and the Nasdaq index to their biggest monthly percentage gains since 2020.
MSCI's world equity index rose 0.23 per cent. S&P futures dipped 0.18 per cent, however, indicating a lower open on Wall Street, after the index rose 1.42 per cent on Friday, also to seven-week highs.
"We don't think the US is in a typical recession yet but will almost certainly be within a few quarters," Deutsche Bank analysts said in a note.
"That delay is supportive for markets relative to what was priced a few weeks ago, but it's hard to say the outlook is positive."
Data on Monday showed contraction in manufacturing in France and Germany.
European stocks gained 0.17 per cent and Britain's FTSE was up 0.33 per cent. Central banks in Britain, Australia and India are all expected to hike again this week.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.15 per cent but stayed within recent ranges.
China's official measure of factory activity contracted in July as fresh virus flare-ups weighed on demand, and the Caixin PMI also missed forecasts.
Chinese blue chips hit six-week lows before recovering ground to trade 0.25 per cent higher.
Japan's Nikkei added 0.7 per cent and South Korea held steady.
Speculators had been massively short on the yen against the dollar on rate hike bets and found themselves squeezed out by the sudden turnaround.
The US dollar was down 0.5 per cent at 132.60 yen, after hitting six-week lows.
The dollar fared a little better on the euro, which has a European energy crisis to contend with, and made hardly any headway last week. The euro was last up 0.13 per cent at $US1.0231.
The greenback was down 0.3 per cent at 105.650 on a basket of currencies, compared with its recent 20-year peak of 109.290.
Bond markets have also been rallying hard, with US 10-year yields falling 35 basis points last month in the biggest decline since the start of the pandemic.
Yields were last at 2.6848 per cent, after hitting their lowest in nearly four months on Friday.
The yield curve remains sharply inverted, suggesting bond investors are more pessimistic on the economy than their equity brethren.
Italy's 10-year government bond yield fell to two-month lows.
The drop in the dollar and yields has been a relief for gold, which was steady at $US1,763 an ounce after bouncing 2.2 per cent last week.
Oil prices softened as weak manufacturing data from China and Japan weighed on the outlook for demand, while investors braced for this week's meeting of officials from OPEC and other top producers on supply adjustments.
US crude fell 48 cents to $US98.13 per barrel, while Brent was steady at $US104.17.