Home

European shares hit record high

Tom Wilson and Andrew GalbraithAAP
Shares in Asia have followed US stocks higher in early trade across the region.
Camera IconShares in Asia have followed US stocks higher in early trade across the region. Credit: AP

Shares have gained and bond yields fell from the United States to Europe as investors shrugged off rising US consumer prices, even as fears of longer-term inflation lingered.

The Euro STOXX 600 added 0.3 per cent on Friday to hit a record high and was on course for a sixth straight day of gains. London shares gained 0.6 per cent, helped by a one per cent gain for the mining sector, while Paris climbed 0.4 per cent.

Also boosting sentiment in Europe was the European Central Bank on Thursday raising its growth and inflation projections, while pledging a steady flow of stimulus for now.

The MSCI world equity index, which tracks shares in 49 countries, gained 0.1 per cent. Wall Street futures were flat.

Get in front of tomorrow's news for FREE

Journalism for the curious Australian across politics, business, culture and opinion.

READ NOW

The US consumer price index posted on Thursday its biggest year-on-year gain since August 2008 of five per cent, following a 4.2 per cent rise in April. Hefty contributions from short-term rises in airline ticket prices and used cars, raised doubts about underlying inflationary pressures.

The rise in the US consumer price index reflected short-term adjustments related to the reopening of the economy, some economists say. As such, many investors are confident the Federal Reserve is deftly handling a rebound in economic growth - though its definition of "transitory" remains unclear.

At the same time, US Labor Department data showed the lowest level of new claims for unemployment benefits in nearly 15 months last week.

US stocks rallied to record highs on the data, with 10-year US Treasury yields also dipping to a three-month low.

Market players said inflation worries have faded in the last month - even if the spectre of great pressure over the long run remains.

"Peak inflation concern was almost a month ago before the higher prints came in," said Kiran Ganesh, head of multi asset at UBS Global Wealth Management in London. "Markets seem to be taking the Fed at its word but when we talk to clients there is concern about long-term inflation."

Euro area bond yields followed suit on Friday, with German 10-year yields set for their biggest fall this year. Yields move inversely with prices.

MSCI's broadest index of Asia-Pacific shares outside Japan was last up 0.4 per cent.

Falling expectations that higher inflation could lead to early Fed tightening prompted a flattening of the US yield curve, with the spread between the 10-year and two-year yield at its narrowest since late February on Friday.

Ten-year Treasury yields were last at 1.4418 per cent, on course for the steepest weekly drop in a year. The 30-year yield touched 2.1270 per cent, the lowest since February 26.

Investors said that yields would likely move higher again as economies reopen from coronavirus lockdowns.

The US dollar fell as yields dipped. Against a basket of currencies it fell slightly to 90.045, hemmed into the relatively tight trading range of this week and down very slightly for the week.

The ECB's dovish commitment to stick with its elevated tempo of bond buying held the euro in check at $US1.2185.

Get the latest news from thewest.com.au in your inbox.

Sign up for our emails