Equities Eye Third Week of Gains After Tech Boost, Dollar Dips

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LONDON—Global shares got a tech boost to help tee up a third straight week of gains on Friday, despite growing inflation concerns, while the dollar dipped and oil prices bounced off their lows.

MSCI’s broadest gauge of global shares was up 0.1 percent, 1.4 percent higher on the week and just 0.8 percent off its all-time high. Europe’s top markets were all up, with the biggest, Britain’s FTSE 100, up 0.4 percent.

That followed gains in Asia, where Japan’s Nikkei advanced 0.3 percent, led by the technology sector, and equity bulls were also comforted by news that heavily indebted Chinese property firm China Evergrande Group had made a surprise interest payment, averting a default for now.

The risk-on tone came despite growing investor concern that persistent inflation could force central bankers to tighten monetary policy at a point where global economic growth remains fragile.

Data on Friday showed euro zone inflation expectations are at their highest in years, amid a rash of warnings from companies including Nestle, ABB, and Unilever.

The German 10-year breakeven inflation rate, which represents the difference in yield between a nominal bond and its inflation-indexed counterpart, rose to around 1.81 percent, the highest since April 2013.

Rising prices crimped euro zone growth in October and could set the scene for a tough meeting of the European Central Bank next week, said Neil Birrell, Chief Investment Officer at asset manager Premier Miton.

“The ECB meets next week, it has plenty to discuss, a faltering economy and rising inflation; it is under pressure to tackle the inflation spike but needs to tread carefully with any change in policy.”

Despite concern that inflation pressures could push governments to tighten monetary policy too quickly, Mark Haefele, Chief Investment Officer, UBS Global Wealth Management, said in a note to clients that equities could still move higher.

“With current issues still appearing more temporary than structural, we believe equity markets will continue to move higher,” Haefele said.

The headquarters of the European Central Bank (ECB) in Frankfurt, Germany on March 12, 2016. (Kai Pfaffenbach/Reuters)

“Indeed, small increases in inflation expectations can be positive for markets if it helps to banish fears of deflation. Furthermore, by our assessment, global growth remains strong, supply chain challenges should recede into 2022, and corporate earnings should continue to grow.”

U.S. stock futures point to a flat open on Wall Street, after the cash index posted a record closing high overnight, led by surging tech shares.

Next week, Facebook, Apple, Amazon, and Google-owner Alphabet all report, with bulls hoping they can follow forecast-beating earnings this week from Netflix.

Meanwhile, yields on benchmark 10-year Treasury notes were at 1.6908 percent, easing back from a five-month high of 1.7050 percent reached overnight.

The dollar index, which gauges the greenback against six major rivals, was down 0.1 percent to 93.634, despite initially bouncing off recent lows after U.S. jobless claims fell to a 19-month low, pointing to a tighter labour market.

The U.S. Federal Reserve has signalled it could start to taper stimulus as soon as next month, with rate hikes to follow late next year. Full employment is among the Fed’s stated requirements for rates lift-off.

Fed Chair Jerome Powell speaks later on Friday in a panel discussion.

Across commodities, oil prices bounced off their overnight lows, up 0.3 percent, with both Brent crude and West Texas Intermediate just about in the black for the week and earlier threatening to break a multi-week winning run.

Gold was up 0.4 percent on the back of the weaker dollar, on course for its second week of gains.

By Simon Jessop