European equities were on course for their best week since March as strong corporate earnings and signs the Chinese government would ease property market restrictions tempered questions about economic stagflation.
The regional Stoxx Europe 600 index ticked 0.2 per cent higher in early dealings, heading for a weekly rise of more than 2 per cent. London’s FTSE 100 added 0.3 per cent, on track for a 1.8 per cent weekly gain.
Stock and bond markets have for weeks been dogged by worries about inflation, slowing economic growth and companies failing to pass on higher costs to consumers.
But better than expected quarterly earnings reports from Citi and Bank of America led Wall Street’s S&P 500 to its best trading day since the spring on Thursday. On Friday, Beijing loosened restrictions on home loans at some large banks, Bloomberg reported, following debt defaults by property developer Evergrande and a regulatory crackdown on property speculation.
“Expectations for this earnings season had really been whittled down,” said David Stubbs, global head of market strategy at JPMorgan’s private bank. After iPhone chipmaker TSMC and US drug retailer Walgreens Boots Alliance also posted forecast-beating results on Thursday, Stubbs added, “the market is now giving this earnings season the benefit of the doubt.”
Echoing Thursday’s rally on Wall Street, Hong Kong’s Hang Seng index added 1.2 per cent, led by consumer and industrials stocks. China’s CSI 300 gained 0.4 per cent and the Topix in Tokyo closed 1.9 per cent higher.
Futures contracts that bet on the direction of the S&P rose 0.2 per cent on Friday morning, while those on the technology-focused Nasdaq 100 added 0.1 per cent.
Government bonds were under pressure on Friday as investors awaited US retail sales data later in the day for clues about whether consumer spending has been curbed by high inflation or remains a strong driver of the economic recovery from the pandemic.
The yield on the benchmark 10-year US Treasury note added 0.02 percentage points to 1.542 per cent. Germany’s equivalent Bund yield rose by the same amount to minus 0.164 per cent. Bond yields move inversely to prices.
The Federal Reserve, according to minutes of its latest meeting, is poised to phase out its pandemic-era monetary stimulus that has involved buying $120bn of Treasury and mortgage-backed bonds per month to lower borrowing costs for companies and households.
Futures markets are also predicting a 0.25 per cent increase in US interest rates, from their current record low level, by September next year.
In currencies, sterling rose 0.4 per cent against the dollar to purchase $1.372 as traders bet on the Bank of England raising interest rates to tame what its chief economist has said could be long-lasting inflation.
Sterling also jumped 0.8 per cent against the Japanese yen, purchasing Y156.5, its highest since early 2016. The Bank of Japan, unlike the BoE and the Fed, has not yet indicated that it is ready to tighten coronavirus-related monetary policy.