European markets take a hop as investors seize on a dip in inflation

European stocks hit new highs on Friday and were on course for a record-breaking run, capping another strong week as investors seize on a dip in US inflation and more forecast-beating corporate earnings.

World stocks mostly rose Friday ahead of more economic releases that could hint at how the delta variant is affecting growth.

France’s CAC 40 climbed 0.2% to 6,895.50, while the DAX in Germany added 0.3% to 15,985.45. Britain’s FTSE 100 picked up 0.4% to 7,223.49 in early trading.

It was a different story in Asia, where worries about a regulatory crackdown in China and a surge in the COVID-19 Delta variant has sapped confidence.


Picture used for illustrative purpose.

US inflation numbers this week suggested rising price growth may be peaking, which would ease pressure on the Federal Reserve to begin tapering its asset purchases. Pandemic-era stimulus has been behind much of the surge in stock prices the past year, but a stronger than expected economic rebound in much of the world and massive corporate earnings has given the rally new legs in recent weeks.

By 0810 GMT on Friday, the MSCI world equity index , which tracks shares in 50 countries, was just below an all-time record high.

The broader Euro STOXX 600 was 0.15% higher - on Thursday it equalled its longest ever longest winning streak. Friday would see the index extending gains for a record tenth consecutive session.

Markets in Germany and France added 0.2%. Britain’s FTSE 100 gained 0.3%.

Futures also pointed to a small gain on Wall Street when it opens.

Not everyone is convinced the recent rally can continue, however.

“We feel a bit more cautious headed into autumn because of uncertainty on the health front, the Chinese regulatory front and the monetary policy front,” said Paul O’Connor, head of multi-asset at Janus Henderson, stressing he was not “bearish by any means” but had dialled back exposure to riskier assets.

“The perception is we have passed the high point in terms of central bank generosity that has suppressed yields. We should expect higher nominal and real yields from here which should start to chip away at the highest valued parts of the markets -U.S. and tech,” he added.

In Asia, markets mostly declined.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.65%, and was 0.87% lower for the week. Chinese blue chips weakened 0.55%, dragged down by its local semiconductor sub-index, which slumped 4.1%.

More broadly, “rising regulatory and geopolitical risks are weighing on medium-term growth prospects (in China), especially in segments targeted by national reform or security effort,” private bank UBP said in an note. The dollar held firm on Friday, staying near its highest level in four months against a basket of currencies, as investors looked for more hints from the U.S. Federal Reserve on its plans to reduce monetary stimulus. The euro edged higher but at $1.1739 was not far off four-month lows.

Nearly two-thirds of economists https://www.reuters.com/world/us/fed-unveil-bond-buying-taper-plan-next-month-jobless-rate-fall-slowly-2021-08-13 polled by Reuters said the Fed is likely to announce a taper of its asset purchases - currently set at $80 billion of Treasuries and $40 billion of mortgage-backed securities per month - at its September meeting.

The yield on benchmark 10-year Treasury notes was last down 2 basis points at 1.3472%, against a U.S. close of 1.367%.

Oil prices fell for a second straight day after the International Energy Agency warned that demand growth for crude and its products had slowed sharply.

London’s FTSE 100 recorded its longest weekly winning streak since November on Friday, although investors fret that an overheating economy could lead the central bank to pull back asset purchases earlier than expected. The blue-chip FTSE 100 ended 0.4% higher, led by healthcare stocks, up 2.1%.

While dollar-earning consumer staples stocks, including Unilever, Reckitt Benckiser Group, British American Tobacco and Diageo Plc gained between 0.5% and 0.8%.

The domestically focussed mid-cap index advanced 0.2% to hit a record high with British engineering company Babcock leading the gains.

Babcock jumped 6.4% to the top of the mid-cap index after it agreed to sell its consultancy unit Frazer-Nash for 293 million pounds ($404.5 million) in cash.

“All eyes are going to be on the Jackson Hole events in a couple of weeks time and on the central bank in the U.S. to see what are the plans regarding to the tapering,” said Craig Erlam, senior market analyst at Oanda.

“The markets have accepted that it’s coming at this point and we trust the policymakers now from almost across the spectrum who have alluded to the fact, later this year was appropriate. So it’s just a case of when and how fast at this point.”

Robust earnings and strong gains in retail stocks on the back of a weaker pound and re-opening trades have helped the FTSE 100 rise 1.3% this week.

However, fears that rising costs could lead central banks to pull back some support have seen the index underperform its mid-cap and European peers.