Stock markets rallied and the dollar slid against the euro and pound on Monday on returning risk appetite as recession fears eased slightly.

Oil prices jumped almost two per cent, even though investors continued to fret over Russia's war in Ukraine, a COVID spike in China and central banks quickly raising interest rates.

"After a volatile week which ended on a high note, the positive momentum has spilled over across the major global markets," noted Richard Hunter, head of markets at Interactive Investor.

"Investors will nonetheless remain on high alert this week, as further economic data provides further colour, while the need for caution against a further possible supply shock for oil and the likelihood of an interest rate hike from the ECB (European Central Bank) increases."

Wall Street raced higher on Friday after June retail sales came in above forecasts and banking giant Citigroup's April-June results beat expectations.

The positivity extended into Monday, with strong gains for Asian and European stock markets.

The positivity extended into Monday, with strong gains for Asian and European stock markets

While a strong set of economic data has of late boosted bets on the US Federal Reserve lifting borrowing costs more, the latest figures were not seen as being large enough to warrant a sharper rate hike next week – easing recession fears.

Market analysts widely expect the US central bank to announce a 75 basis-point lift, though some have suggested a one percentage-point increase could be on the cards to try and cool decades-high inflation.

ECB to act

The ECB is set on Thursday to raise its interest rates for the first time in more than a decade.

To try and counteract a steep rise in prices, the central bank has said it intends to raise borrowing costs by a quarter point, the first such move since 2011. 

The ECB's delay in acting compared with other central banks that have announced a series of increases – coupled with fears of a eurozone recession – saw the euro fall to parity with the dollar last week.

But on Monday, the European single currency was up 0.7 per cent against the dollar, which slumped one per cent versus the British pound.