August 13, 2021
By Tommy Wilkes
LONDON (Reuters) -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 U.S. inflation and more forecast-beating corporate earnings.
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.
U.S. 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.
“We see the (inflation) data as consistent with the Federal Reserve’s view that price pressures will start to fade and do not justify an early withdrawal of monetary stimulus. The market appears to share this view,” said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, pointing to record closes for the S&P 500 and falling U.S. Treasury yields.
Pandemic-era stimulus has been behind much of the surge in stock prices the past year, but a stronger than expected economic rebound across the world and massive corporate earnings have given the rally new legs in recent weeks.
By 1130 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 0.37% and 0.32% respectively. Britain’s FTSE 100 gained 0.38%.
Futures also pointed to a small gain on Wall Street when it opens after markets closed at record highs on Thursday.
Not everyone is convinced the 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.
He said 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.
Investors will also be watching consumer sentiment inflation expectations numbers due in the U.S. at 1400 GMT.
In Asia, markets mostly declined.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.56%, and was 0.8% lower for the week.
Chinese blue chips weakened 0.55%, dragged down by its local semiconductor sub-index, which slumped 4.1%.
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 rose 0.3% but at $1.176 it remained 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 3 basis points at 1.3421%, 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, although the drop on Friday was small.
(Additional reporting by Sujata Rao in London and Alun John in Hong KongEditing by Mark Heinrich and Angus MacSwan)