Wed. Dec 1st, 2021

European equities faltered near all-time highs on Wednesday after a long winning streak driven by strong corporate earnings was tempered by rising inflation.

The Stoxx Europe 600 index, which closed higher at 16 of its last 20 trading days, opened 0.2 percent before flattening. London’s FTSE 100 rose 0.4 percent, lifted by oil producers, while futures following Wall Street’s S&P 500 stock index fell 0.1 percent.

The moves came after data showed that Chinese producer price inflation rose 13.5 percent in October from the same time last year, the biggest jump in 26 years when factories absorbed higher energy prices.

This measure of what businesses pay each other for supplies also remained at a record high of 8.6 percent in the U.S. last month, data showed Tuesday. Later Wednesday, the U.S. Bureau of Labor Statistics is expected to report that consumer prices rose 5.8 percent in the year to October, the fastest growth rate since 1990.

Analysis of European companies’ results for the third quarter by Barclays showed that “most companies are optimistic about the outlook”, strategists at the bank said in a note to customers. “Strong demand prevails,” they said, which “increases price power”.

Marks and Spencer shares rose 15 percent on Wednesday after the British food and clothing retailer upgraded its earnings forecasts due to what it called a “return on spending” and despite “well-publicized cost pressures” [that] will become progressively steeper ”.

Government bond markets traded cautiously ahead of US consumer price data as investors remained cautious about seeing price increases outside sectors such as used cars, where growing demand was explained by a coronavirus-related semiconductor deficiency which affected the production of new vehicles.

“We’ll be looking at the rental component in particular, as this is one area that could show that inflation is likely to be more persistent,” said Chris Jeffery, head of rates and inflation strategy at Legal & General Investment Management.

The yield on the 10-year Treasury note, which moves in reverse to the price of government debt securities, rose 0.03 percentage points to 1,473 percent. The two-year treasury yield added 0.05 percentage points to 0.457 percent.

Long-term bonds tend to fall in price when traders fear that long-term inflation will erode the value of the debt’s fixed interest payments, while bonds with shorter-term interest rate expectations may follow. Jay Powell, chairman of the Federal Reserve, last week promised a patient attitude towards raising the central bank’s key interest rate from a record low.

Asian markets mostly fell on Wednesday in response to the surge in Chinese factory gate inflation, which according to Jeffery of L&G would hurt “optimism on seeing some degree of monetary policy action ”from Beijing to support the nation’s sick real estate sector.

China’s CSI 300 stock index fell 0.5 percent while the Nikkei 225 closed 0.6 percent lower in Tokyo.

The euro fell 0.2 percent against the dollar to $ 1,157 as traders switched to the reserve currency in case Wednesday’s consumer price inflation data suggest the Fed may have to move on interest rates sooner than markets currently expect. Sterling fell 0.2 percent to $ 1,353.

Brent crude, the oil benchmark, fell 0.2 percent to $ 84.59 a barrel.

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