Global stocks rise as investors ignore inflations indicators

Global stocks rose to an all-time high, with investor showing confidence in a strong economic recovery from coronavirus and the vaccine effect, but the market is still a bit cautious about the outcome of the US central bank’s next monthly meeting.

The FTSE All World index, which measures the developed and emerging market stocks, went up 1.1 percent this month. Europe’s Stoxx 600 share index racked up a little by 0.3 percent to hit a record.

“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.

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The US Federal Reserve, which sets the tone for the rest of the world’s rates, will be holding its meeting next week. Some policymakers have been lobbying for a reduction in the monthly bond purchases of $120bn initiated to boost the financial market last year as part of the stimulation endeavor.

They believe, as the US economic output forecast is set to improve with an expected annualized rate of 9 percent in the second quarter of this year, the government does not need to spend so much.

With the figures improving and corporate earnings also set to follow suit, investors are waiting on the central bank policies leanings now. “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.

Despite rumblings of a cut in government spendings, government bonds continued their rally. The yield on the 10-year US Treasury bond, a benchmark for global debt markets, fell by 0.02 percentage points to 1.443 percent, around its lowest since early March.

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 percent in April compared with the same month last year. Germany’s bonds, the Bund, dropped 0.03 percent to minus 0.285 percent.

The US consumer prices rose 5% year-on-year in May, the biggest jump since 2008. The Federal Reserve said that it expects any rise in inflation to be temporary and emphasized that was too early to talk of reducing the stimulus efforts.

Investors have dismissed inflation as a pandemic-related price normalization. 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.

The dollar index, which measures the US currency against those of major trading partners, was flat as traders awaited further clues from the Fed. Brent crude, the international oil benchmark, gained 0.2 percent to $72.68 a barrel. 

Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

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