European equities climbed after an economic activity survey offered early evidence that the eurozone was rebounding from a double-dip recession.
The regional Stoxx 600 index, which has hovered around a record high for the past month, added 0.4 per cent by midday in London. The UK’s FTSE 100 was flat.
IHS Markit’s purchasing managers’ index, based on manufacturing and service sector executives’ responses to questions on topics such as hiring plans and new business, hit a 39-month high this month with an expansionary reading of 56.9, up from 53.8 in April. A reading of 50 separates growth from contraction.
A US version of this indicator is expected to moderate slightly from the record high it reached in April. Futures markets signalled the S&P 500 index would gain 0.3 per cent at the New York opening bell.
“There is a sequencing in the global recovery, with Europe lagging by a [calendar] quarter or two,” said Agnès Belaisch, chief European strategist at fund manager Barings. “Europe is a very big economic power and it is finally reopening.”
While the PMI surveys are closely scrutinised for signs of economic recovery, they also offer insight into inflationary pressures that might cause central banks to alter the pace or timelines of their asset purchases. April’s US survey identified supply-chain shortages that pushed down prices of securities that are sensitive to changing monetary policy expectations, such as government bonds and technology shares.
“While economic activity is steadily improving, what equity markets will internalise is that there is less cause for support on the monetary policy front as the data improves,” said Mobeen Tahir, research director at WisdomTree.
The price of spot gold, perceived as a hedge against inflation which erodes the real returns from other assets such as stocks and bonds, rose to $1,879 an ounce on Friday, its highest since January.
Bond markets were steady. The yield on the US 10-year Treasury was flat at 1.633 per cent. Germany’s equivalent Bund yield dipped 0.01 percentage points to minus 0.118 per cent.
The 10-year yield, which sets the discount rate professional investors use to value equities, has climbed from about 0.9 per cent at the start of the year because of expectations the Federal Reserve would begin reducing its $120bn of monthly bond purchases that have supported financial markets throughout the pandemic.
On Wednesday, minutes of the Fed’s latest meeting showed some of its rate-setters thought the central bank should “at some point in upcoming meetings,” start to discuss “a plan for adjusting the pace of asset purchases”.
Sterling gained 0.2 per cent against the dollar to purchase $1.4218 after data showed UK retail sales soared by more than 9 per cent in April, year on year, as clothing shops reopened following coronavirus shutdowns. The euro was 0.1 per cent lower against the dollar, purchasing $1.2219.
The dollar index, which measures the greenback against trading partners’ currencies, was down 0.1 per cent.
Brent, the global oil benchmark that touched $70 a barrel on Tuesday for only the third time since the start of the pandemic, was up 1.2 per cent to $65.89 a barrel on Friday.
Source: Economy - ft.com
