Global stocks ticked up to an all-time high as investors held on to positions that forecast a strong economic recovery from coronavirus but maintained a cautious stance ahead of the US central bank’s next monthly meeting.
The FTSE All World index inched 0.1 per cent higher to its latest record. The gauge of developed and emerging market stocks has eked out a 1.1 per cent rise this month after outsized gains earlier in the year.
Europe’s Stoxx 600 share index nudged 0.3 per cent higher to a hit a record, although it has also risen just 0.3 per cent so far in June.
“The economic data is all continuing to improve, but everyone was expecting it,” said Caroline Simmons, UK chief investment officer for UBS wealth management. “People are now waiting to see what happens with central banks,” she added.
The US Federal Reserve, the world’s most influential rate-setter, holds its monthly meeting next week, which will be closely watched after some of its policymakers called for talks about reducing its $120bn of monthly bond purchases that have boosted financial markets since last March.
US economic output is forecast by the Conference Board to grow at an annualised rate of 9 per cent in the second quarter of this year. The European Central Bank also raised its forecasts for eurozone economic growth on Thursday, while data on Friday showed UK GDP jumped by a record 27.6 per cent in April compared with the same month last year.
Investors are weighing up this progress, which raises the likelihood of strong corporate earnings, with how it may influence the future path of central bank policy.
“The Fed is likely to start talking about reducing asset purchases more openly in the next couple of months, with a view that they actually do some tapering next year,” Simmons said.
Government bonds continued their rally on Friday that started earlier in the week, despite growing tapering concerns and strong inflation numbers out of the US. The yield on the 10-year US Treasury bond, a benchmark for global debt markets, fell by 0.02 percentage points to 1.443 per cent, around its lowest since early March. Germany’s equivalent Bund yield dropped 0.03 per cent to minus 0.285 per cent.
The US labour department reported on Thursday that headline consumer price inflation accelerated 5 per cent in the 12 months to May — the largest year-on-year leap since 2008.
Investors were “clearly content to dismiss the outcome as being mainly due to pandemic-related price normalisation,” commented Daiwa economist Chris Scicluna, “rather than a sign of stronger-than-anticipated demand pressures that might disturb the Fed’s dovish policy outlook”.
In a research note, the investment committee of Swiss bank Credit Suisse warned of an “elevated level of investor complacency”, about inflation, however.
“Should another round of high inflation indicators prompt central banks, first and foremost the US Federal Reserve, to indicate less patience to keep monetary conditions easy, markets could be caught rather off guard,” Credit Suisse said.
In currencies, the euro was steady against the dollar to purchase $1.2167. Sterling fell 0.1 per cent to $1.4153. The dollar index, which measures the US currency against those of major trading partners, was flat after trading in a tight range for most of this month as traders awaited further clues from the Fed.
Brent crude, the international oil benchmark, gained 0.2 per cent to $72.68 a barrel.