US equities rallied on Friday and bond yields plunged from the United States to Europe as investors ignored the rise in US consumer prices, although concerns over long-term inflation persisted.
The euro STOXX 600 (.STOXX) added 0.3% to a record high for the sixth day in a row. London shares (.FTSE) gained 0.6%, boosted by a 1% gain in the mining sector (.SXPP), while Paris (.FCHI) gained 0.4%.
Sentiment in Europe was also boosted by the European Central Bank, which on Thursday raised its growth and inflation forecasts, while promising a steady stream of stimulus for now. read more
The MSCI Global Stock Index (.MIWD00000PUS), which tracks stocks in 49 countries, added 0.1%. Wall Street futures remained unchanged.
The US consumer price index on Thursday showed the largest year-on-year growth since August 2008 at 5% after rising 4.2% in April. The significant contribution from short-term increases in airfare and used car prices raised doubts about the underlying inflationary pressures. read more
According to some economists, the rise in the US CPI reflects short-term adjustments associated with the economic recovery. Thus, many investors are confident that the Federal Reserve is cleverly handling the recovery in economic growth, although its definition of “transitional” remains unclear. read more
At the same time, data from the US Labor Department showed the lowest rate of new jobless claims in nearly 15 months last week. read more
US stocks surged to record highs on the data, with the yield on 10-year US Treasuries also slipping to a three-month low.
Market participants said fears about inflation had subsided over the past month, even if the threat of strong pressure persists in the long term.
“Inflation peaked almost a month ago, before better results emerged,” said Kiran Ganesh, head of multi-assets at UBS Global Wealth Management in London. “The markets seem to be taking the Fed at its word, but when we talk to clients, concerns about long-term inflation arise.”
Eurozone bond yields followed suit on Friday, and Germany’s 10-year bond yields fell this year. Profitability changes in inverse proportion to prices. L5N2NT1DM
The broadest Asia-Pacific stock index outside Japan, MSCI (.MIAPJ0000PUS), last rose 0.4%.
Fewer expectations that higher inflation could lead to early Fed tightening has flattened the US yield curve, with the 10-year to 2-year bond spread being the tightest since late February on Friday.
The 10-year Treasury yield was last at 1.4418%, the sharpest weekly drop in a year. The 30-year yield hit 2.1270%, the lowest since February 26.
Investors said yields are likely to pick up again as economies reopen after the coronavirus lockdown.
“We still think consumers will drive prices up when these economies reopen properly and people can travel again, spend again,” said Jeremy Gatto, portfolio manager at Unigestion.
“We are looking to get additional impetus from the consumption side and therefore expect bond yields to rise.”
The US dollar fell due to falling yields. Against a basket of currencies, it fell slightly to 90.045, confining itself to a relatively narrow trading range this week and only slightly declining over the week.
The ECB’s soft commitment to high bond purchases kept the euro at $ 1.2185.
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