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The dollar rallied and key stocks in the US, Europe and the world hovered around record highs on Friday as investors embraced the loose monetary policy of the major central banks and their message that the rise in inflation would be temporary.
Sentiment in Europe was also boosted by the European Central Bank, which on Thursday raised its growth and inflation forecasts, while it again promised a steady influx of stimulus for now.
ECB forecasts pushed the pan-regional STOXX Europe 600 index up 0.68% to an intraday high and a record close at 457.64.
The MSCI Global Equity Index, a global benchmark that tracks stocks in 50 countries, hovered around breakeven, down 0.03% after earlier setting a new intraday high.
Wall Street stocks also edged closer to breakeven as investors reoriented their portfolios to tech stocks after Thursday disregarding data showing that annual inflation soared to 5.0% in May, seen as a temporary jump.
The inflation data has alarmed many investors, but for now the reaction is that stocks are still preferred over bonds in the face of inflation, said Rick Meckler, partner at Cherry Lane Investments in New Vernon, NJ.
Investors are leaning towards technology stocks because they don’t use raw materials and productivity is higher than in other sectors, he said.
“There are concerns that over time you may get some migration from stocks to bonds. But now we seem to be at that anticipatory tipping point where bonds are not yielding enough to scare people away from selling stocks, ”Meckler said.
The Dow Jones Industrial Average fell 0.17%, the S&P 500 fell 0.01% and the Nasdaq Composite Index added 0.1%.
Overnight in Asia, MSCI, the broadest Asia-Pacific stock index outside Japan, gained 0.3%.
The yield on 10-year US Treasuries rose 0.6 basis points to 1.4653% after an earlier decline that was the benchmark for its biggest weekly decline in a year.
Eurozone bond yields followed Treasury bonds. Benchmark German 10-year bonds fell 3 basis points to -0.28% and were identified as the best week of the year. Profitability changes in inverse proportion to prices.
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.
Yields are likely to rise again as the economy reopens 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, investment manager at Unigestion. “We are looking to get additional impetus from the consumption side and therefore expect bond yields to rise.”
The euro and pound fell against the dollar as investors are confident that interest rates in Europe will remain lower.
The dollar index rose 0.57%, the euro fell 0.61% to $ 1.2095. The Japanese yen weakened 0.40% against the dollar to 109.76 per dollar.
Oil prices climbed to multi-year highs for a third straight week on the back of improved forecasts for global demand as more vaccinations lift restrictions on the pandemic.
Brent crude futures rose 32 cents to $ 72.84 a barrel. US oil futures rose 60 cents to $ 70.89 a barrel.
(Copper rallied on Friday, supported by a weaker dollar, while aluminum prices jumped in Shanghai on talk of lower-than-expected sales of the metal from China.
Three-month copper on the London Metal Exchange rose 1.1% to $ 9,989.50 a tonne by 07:35 GMT, while July’s most traded copper on the Shanghai Futures Exchange closed 0.4% higher % to 71,770 yuan ($ 11,230.56) per tonne. After a week of anxious expectations, the markets got a high inflation rate in the US, which they feared, did not pay attention to it and moved on, leaving the US dollar under pressure.
A softer dollar makes metals cheaper in US dollars for holders of other currencies.
“We expect short-term stabilization after copper and aluminum, especially, hit new highs in May,” analysts at Fitch Solutions said.
“However, there should be no collapse and prices will remain high y / y on the back of a weaker US dollar, weak fundamentals and positive investor sentiment as the global economy continues to recover.”
The price of ShFE aluminum rose 3.8% to 19,200 yuan a tonne, the highest since May 20, as recent market negotiations indicated that the Chinese authorities will release less aluminum to the market than expected.