Europe’s main stock markets pushed higher yesterday as investors reacted to a surprise dip in British inflation and shrugged off slower-than-expected German economic growth.
Meanwhile, on Wall Street the Dow pulled off a record close after six-day winning streak as US markets continued to adjust following last week’s tumultuous post-election trading sessions, although both the broader S&P 500 and tech-heavy Nasdaq Composite were higher.
“Stock markets rose once more today, as hopes of a high growth period based on substantial fiscal stimulus continued to stoke the embers of last week’s US election,” said analyst Joshua Mahony at online trading firm IG.
London’s benchmark FTSE 100 index closed 0.6% higher, helped by a lower pound after a surprise drop in inflation.
Britain’s annual inflation rate eased to 0.9% in October compared with 1.0% a month earlier, despite a Brexit-triggered slump in the pound lifting imported raw material costs for British firms.
The figure took analysts, who had pencilled in a slight increase, by surprise and helped push the pound lower.
But UniCredit Research economist Daniel Vernazza said the easing in inflation was “just a blip in what is a strongly upward trend”.
Frankfurt’s DAX 30 added 0.4% higher despite data showing German economic growth slowed more sharply than expected in the third quarter.
That disappointment was counterbalanced by a leap in German investor morale in November, although respondents questioned after Donald Trump’s shock US election victory were less optimistic about the future.
Most Asian emerging markets rose after the previous day’s heavy losses but traders remained on edge over Trump’s plans for global trade agreements.
His plans for huge spending and tax cuts at home have also fanned expectations the Federal Reserve will hike interest rates more sharply than initially planned, sending the dollar soaring and fuelling an exodus from emerging markets.
However, after a two-day retreat on most regional bourses, there was a tentative recovery with Manila up 0.3%, Jakarta 0.5% higher and Bangkok adding 0.2%.
Tokyo, though, was marginally lower, having surged more than 8% to a nine-month high since Thursday on the back of a rally in the dollar against the yen.
“Risks are elevated, and we are expecting further increases in volatility as markets attempt to second-guess the policies that might eventually come out from the US,” Michael McCarthy, chief market strategist at CMC Markets in Sydney, told Bloomberg News.
The dollar struck a new five-and-a-half month high of 109.06 yen, and traders suggested it could test the 110 yen mark as soon as this week, with eyes on Fed chief Janet Yellen’s congressional testimony later this week.
The central bank is widely expected to hike borrowing costs next month but her remarks tomorrow will be pored over for clues about plans for next year.
That has played havoc in bond markets, where investors are now seeking higher returns.
Analysts at Capital Economics noted that capitalisation of Barclays “Multiverse” global bond index is around $1.5tn lower now than on November 8.
“However, this only represents a decline of roughly 3%,” said Capital Economics’s chief global economist, Julian Jessop, and also partly reflects the surge in the dollar.
In London, the FTSE 100 up 0.6% at 6.792,74 points; Frankfurt – DAX 30 up 0.4% at 10,735.14 points and Paris – CAC 40 up 0.6% at 4,536.53 points at the close yesterday.