LONDON (Reuters) -World shares rose on Friday and government bonds rallied after encouring euro zone and U.S. inflation data, although equities and fixed income were set for their worst quarter in a year as central banks kept interest rates high.
MSCI’s broad index of global stocks gained 0.4% on Friday, while European and U.S. government bond yields dropped as the prices of the fixed interest-paying instruments rose.
In a surprise bout of good news for hawkish central banks, data on Friday showed headline inflation in the euro area rose 4.3% in September year-on-year, below economists’ forecasts for a 4.5% rise and its lowest in two years. `
Hours later, a U.S. report showing that the annual rate of core personal consumption expenditure, the Federal Reserve’s favoured inflation measure, moderated to 3.9% in August.
Elsewhere in markets, futures contracts that track the performance of Wall Street’s S&P 500 share index indicated the blue-chip equity benchmark would open 0.7% higher later on.
Europe’s Stoxx 600 share index jumped 1.2% and Britain’s FTSE 100 rose 0.6%.
The positive news on inflation also provided a bright end to a torrid quarter for government bonds.
Germany’s 10-year government bond yield fell 12 bps to 2.848%, with the euro area debt benchmark heading for its best trading day in more than a month.
The yield on the 10-year U.S. Treasury fell 5 bps to 4.6%.
Germany’s 10-year yield has shot up 46 bps this quarter, reflecting the worst three-month sell-off since the third quarter of 2022.
The 10-year U.S. Treasury yield is up 73 bps since July, also its worst quarterly performance since the same quarter last year.
Friday’s debt market relief came as some analysts said bonds had been oversold in recent months.
The Fed and the European Central Bank have signalled that the best investors could hope for, following their sharpest monetary tightening cycle in decades, was a long period of interest rates staying where they are.
Friday’s inflation data revived hopes that central banks, while still talking tough, were preparing to soften their monetary stance.
“Yields are way too high and will move lower but we’re in that gap between now and when that happens,” said James Rossiter, head of global macro strategy at TD Securities in London.
Strategists at Barclays in a note to clients cautioned, however, that because stock valuations fall when the income yields on lower-risk bonds rise, “if the bond market were to turn more disorderly, equities are unlikely to be immune”.
In currencies, the euro added 0.4% against the dollar. Sterling rose 0.4% after a revision of official data on Friday showed Britain’s economic performance since the start of the COVID-19 pandemic was stronger than previously thought.
The dollar index eased 0.4% to 105.75 but hovered near 10-month highs of 106.84 touched earlier this week.
In Asia, the Japanese yen was at 149.11 per dollar, staying around levels that have put markets on alert for potential currency intervention.
MSCI’s index of Asian stocks outside Japan rose 1.2% on Friday, with Chinese markets closed for a holiday.
Oil prices regained ground after a brief pause in a rally as traders weighed expectations of supply increases by Russia and Saudi Arabia versus forecasts of positive demand from China during its Golden Week holiday.
U.S. crude rose 1.4% to $92.93 per barrel and Brent was at $96.06, up 0.7% on the day. [O/R]
Source: Economy - investing.com
