European stocks and US futures inched higher on Friday ahead of closely watched inflation readings on both sides of the Atlantic, with traders on the alert for the impact on consumer prices of higher interest rates.
Europe’s region-wide Stoxx 600 was flat shortly after opening and is on track to finish the quarter up more than 6 per cent.
Germany’s Dax — which is up more than a tenth since the start of the year — was also flat, while London’s FTSE 100 was up 0.1 per cent after data showed the UK economy grew by 0.1 per cent between the third and fourth quarters of 2022.
Contracts tracking Wall Street’s S&P 500 and the tech-heavy Nasdaq 100 both rose less than 0.1 per cent ahead of the New York open.
The tentative gains in stock markets came as investors awaited inflation figures that will heavily influence how both the European Central Bank and the US Federal Reserve approach their next interest rate decisions, and against a backdrop of acute tension in the banking sector. “Recession mood prevails and deployed risk is low,” said Emmanuel Cau, head of European equity strategy at Barclays.
In the US, the February figure for the core personal consumption expenditures price index — the Fed’s preferred inflation gauge — is published on Friday. It is expected to have slowed to 5.1 per cent on a headline basis, year on year, from 5.4 per cent in January.
Europe’s harmonised index of consumer prices is expected to have slowed to 7.1 per cent in the year to March from 8.5 per cent in February. Core inflation is forecast to rise to 5.7 per cent from 5.6 per cent, “which is probably what should tilt the balance for markets” rather than the headline figure, said Francesco Pesole, FX strategist at ING.
Bond markets sold off slightly, with the yield on policy-sensitive two-year US Treasury note rising 0.03 percentage points to 4.13 per cent and the yield on the two-year German Bund up 0.02 percentage points at 2.76 per cent. Bond yields move inversely to prices.
Asian equities advanced on Friday, buoyed by stronger than expected economic data in China.
Hong Kong’s Hang Seng index added 0.9 per cent, and China’s CSI 300 rose 0.3 per cent. South Korea’s Kospi and Japan’s Topix each advanced 1 per cent.
Activity in China’s non-manufacturing sectors grew at its fastest rate in more than a decade in March as business confidence rocketed and demand grew steadily, according to a closely watched official gauge.
“This strength won’t be sustained indefinitely, however,” said Julian Evans-Pritchard, head of China economics at Capital Economics. Much of the immediate boost from dismantling Covid-19 restrictions has “already passed” and the recovery is “likely to moderate over the coming months”.