Global stocks ticked up to an all-time high on Friday thanks to minor gains that came as investors balanced more signs of a strong economic recovery from coronavirus with caution ahead of next week’s US Federal Reserve meeting.
The FTSE All-World index inched up 0.1 per cent to its latest record, taking the rise for the global equities benchmark to 1.1 per cent this month.
Wall Street’s S&P 500 index extended an all-time high hit on Thursday by just 0.1 per cent in early New York dealings, while the technology-focused Nasdaq Composite traded flat.
The Europe-wide Stoxx 600 share index rose 0.6 per cent to reach a record, buoyed by materials and consumer cyclical stocks after the European Central Bank upgraded its growth forecasts for the eurozone on Thursday.
“The economic data is all continuing to improve, but everyone was expecting it,” said Caroline Simmons, UK chief investment officer for UBS wealth management. “People are now waiting to see what happens with central banks.”
Next week’s Fed meeting will be closely watched after vice-chair Randal Quarles called for talks about trimming its $120bn of monthly bond purchases that have supported financial markets since March 2020.
“The Fed is likely to start talking about reducing asset purchases more openly in the next couple of months, with a view that they actually do some tapering next year,” Simmons said.
A rally in US Treasury bonds ran out of steam on Friday. Traders were anticipating that the Fed would respond to strong inflation in the US by sticking to its view that high price rises were a temporary effect of industries reopening.
The yield on the 10-year US Treasury, a benchmark for global debt markets, was flat at 1.458 per cent to remain around its lowest since early March. Germany’s equivalent Bund yield dropped 0.03 per cent to minus 0.276 per cent, however, after the ECB on Thursday pledged to maintain the pace of eurozone government bond purchases under its €1.85tn pandemic emergency programme.
Data on Thursday showed headline consumer price inflation in the US rose 5 per cent in the 12 months to May, the largest increase since 2008. Investors dismissed this jump “as being mainly due to pandemic-related price normalisation”, said Daiwa economist Chris Scicluna.
Credit Suisse, however, warned in a research note of an “elevated level of investor complacency”.
“Should another round of high inflation indicators prompt central banks . . . to indicate less patience to keep monetary conditions easy, markets could be caught rather off guard,” the lender said.
“The Fed will likely maintain its dovish mantra,” said Ralf Preusser, rates strategist at Bank of America. “But given the continued upside surprises in inflation, the Fed may find itself on the defensive if inflation expectations start reacting more meaningfully.”
In a sign of caution creeping back into markets, the index measuring the dollar against major currencies rose 0.4 per cent as the haven asset became more attractive. The euro lost 0.5 per cent against the dollar to purchase $1.211, while sterling fell 0.4 per cent to $1.412.
Brent crude, the international oil benchmark, gained 0.1 per cent to $72.62 a barrel.
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