European equities were on course on Friday for a small weekly gain as investors balanced the prospect of trillions of dollars in stimulus spending by the US government with concerns over rising inflation.
The Stoxx 600 index opened 0.3 per cent higher, taking its gain for the week to 0.8 per cent so far and touching a fresh all-time high. London’s FTSE 100 added 0.3 per cent.
The Stoxx has hovered around record levels for weeks after investor optimism about Europe’s Covid-19 vaccine rollout and economic reopening timelines gathered pace, while failing to push out of this range due to concerns about US monetary policy and inflation.
Later on Friday US data are expected to show that core personal consumption expenditure – the Federal Reserve’s preferred measure of inflation that excludes volatile food and energy costs – hit 2.9 per cent in April from the same month last year, its highest reading since 1993.
US president Joe Biden, who views inflationary pressures as temporary and has called for corporate America to pay higher wages, will also lay out a $6 trilion (€4.9 trillion ) annual budget proposal incorporating large-scale infrastructure and social investment programmes.
The inflation data will be scrutinised by investors in markets globally because they may pressure the Fed, the world’s most influential central bank, to rethink its ultra-loose monetary policies that have boosted markets throughout the coronavirus pandemic and been followed by rate-setters around the world.
Many analysts view a high inflation reading as a temporary consequence of industries reopening after coronavirus shutdowns, but some see it as a more persistent effect of product shortages and rising energy prices.
“Supply-chain bottlenecks and shortages in manufacturing seem to be more widespread and durable than initially anticipated,” said Thomas Costerg, senior US economist at Pictet Wealth Management. “Pressure could rise on the Fed to start sending signals about slowing its $120 billion-per-month asset purchases.”
The Nikkei jumped by 2.1 per cent . MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.1 per cent and hit its highest level this month. The Hang Seng climbed 0.6 per cent , but Chinese blue chips were an outlier, slipping 0.1 per cent a day after closing at a near three-month high.
Prices of government bonds, which often react to changing inflation expectations, softened on Friday. The yield on the 10-year US Treasury bond, which moves inversely to its price and has climbed from about 0.9 per cent at the start of 2021, added 0.01 percentage point to 1.623 per cent. Germany’s equivalent Bund yield rose 0.01 percentage points to minus 0.168 per cent.
In currencies, the euro slipped 0.1 per cent against the dollar to purchase $1.2176. Sterling also dipped 0.2 per cent to $1.4182. The dollar index, which measures the greenback against major currencies, added 0.2 per cent.
Brent crude, the global oil benchmark, was 0.2 per cent lower at $69.29 a barrel.
Copyright The Financial Times Limited 2021