Global stocks stay near highs ahead of US inflation data

Global stocks remained close to all-time highs and government bonds drifted ahead of US inflation data and the European Central Bank’s latest monthly meeting.

The FTSE All-World index of developed and emerging market shares, which hit a record in early June, was flat in early London dealings. The Stoxx Europe 600 index was also unmoved on the previous session after hitting a record high earlier in the week. Futures markets signalled the S&P 500 would trade flat in early Wall Street dealings.

Economists expect that highly anticipated US data later on Thursday will show that the headline year-on-year inflation rate rose to 4.7 per cent in May, up from 4.2 per cent in April. The core inflation reading, which excludes volatile food and energy prices, is anticipated to have reached 3.4 per cent, its highest level since the early 1990s.

But Federal Reserve chair Jay Powell has said consistently that higher prices were a transient effect of industries reopening after pandemic lockdowns and that the central bank would continue its $120bn of monthly bond buying that has supported financial markets since March last year.

“The market is pricing in the Fed’s view that high inflation will be temporary,” said Monica Defend, head of research at fund manager Amundi.

“The risks around the inflation data are asymmetric,” said Olivier Marciot, cross-asset fund manager at Unigestion. “The market is expecting a big number and then for Fed policymakers to say this is not a problem . . . And if we get a number that is lower than expected, stock markets will thrive on this.”

The yield on the 10-year US Treasury note, which moves inversely to the price of the benchmark government bond, ticked 0.01 percentage point higher to 1.5 per cent but remained around its lowest level since early March. Government debt rallied in recent days as fixed income traders placed bets on the Fed keeping interest rates ultra low and continuing with its debt purchases.

The ECB is also expected to maintain the monthly pace of purchases under its €1.85tn government bond-buying programme at its meeting on Thursday despite a bout of higher inflation in the eurozone. President Christine Lagarde said in late May that it was “far too early” to discuss reducing the emergency support that had bolstered the finances of the bloc’s governments through the pandemic.

Those comments, according to analysts at Barclays, “suggest that the ECB will err on the side of caution and refrain from material change in the pace of purchases”.

Currency markets also lacked direction on Thursday. The euro weakened 0.1 per cent against the dollar to $1.2164. Sterling fell 0.2 per cent to 1.4094.

Brent crude, the international oil benchmark, climbed 0.2 per cent to $72.37 a barrel.

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