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World stocks hit highest in a week as inflation scare fades

World stocks hit highest in a week as inflation scare fades

FILE PHOTO: A man is reflected on a stock quotation board in Tokyo, Japan February 26, 2021. REUTERS/Kim Kyung-Hoon

LONDON: World stocks rose to their highest in just over a week on Thursday after a report on U.S. consumer prices calmed investor nerves about inflation and lifted the Dow Jones Industrial Average to a record close.

European stocks climbed, with the pan-European STOXX 600 index reaching a one-year peak and up 0.2per cent on the day. France's CAC 40 index rose 0.14per cent, and Italy's FTSEMIB 0.8per centper cent. Britain's FTSE 100 index fell 0.36per cent and Germany's DAX traded flat.

MSCI's All Country World Index, which tracks stocks across 49 countries, rose to its highest in just over a week, up 0.7per cent on the day.

Earlier in Asia, an index of regional stocks excluding Japan rose 1.78per cent, led by a 2.3per cent surge in South Korea's Kospi, and was on track for its first three-day advance in three weeks.

China's Shanghai Composite rallied 1.9per cent, helped by local lending data. Japan's Nikkei 225 gained 0.5per cent.

E-mini futures for the U.S. S&P 500 index gained to their highest in two weeks, up 0.7per cent.

Relative calm in the Treasuries market also helped risk sentiment, with the benchmark yield settling as low as 1.4750per cent after shooting to a one-year high above 1.6per cent last week as investors worried the U.S. economic recovery would run too hot.

"If we look at history, we see that when yields have gone up, after a while equity markets have generally been okay," said Justin Onuekwusi, portfolio manager at Legal & General Investment Management. "The only time you really see both equities and bonds sell off is in periods when there is a significant inflation scare."

At this point ,with unemployment still so high, it is hard to see inflation becoming a problem, Onuekwusi said. Higher yields could be read as showing "that we are actually getting out of the quagmire we have been in."

"And there is a natural yield cap - central banks will step in when rates move too quickly. They are differentiating between levels of yield and speed at which yields move."

The European Central Bank sets its policy on Thursday and is likely to signal faster money printing to keep a lid on borrowing costs but stop short of adding firepower to its already aggressive pandemic-fighting package.

The U.S. Labor Department said its consumer price index rose 0.4per cent in February, in line with expectations, after a 0.3per cent increase in January. Core CPI, which excludes volatile food and energy components, edged up 0.1per cent, just shy of the 0.2per cent estimate.

Analysts largely expect inflation to pick up as vaccine rollouts lead to a reopening of the economy, but worries persist that additional stimulus in the form of a US$1.9 trillion coronavirus relief package set to be signed by U.S. President Joe Biden could overheat the economy.

Investors will now eye an auction of 30-year debt on Thursday, seeking to cover massive shorts. A weak seven-year auction in late February helped fuel inflation concerns and sent yields higher.

"Rises in U.S. bond yields appear to have subsided a bit after the 10-year yield has reached 1.5per cent, even though many investors remain cautious before the Fed's policy meeting," said Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset Management.

"The Fed has ratcheted up its rhetoric on bond yields lately. The reality is, the economy is in a K-shaped recovery, with the service sector still in difficult conditions and the Fed would probably not want to let real interest rates rise."

The dollar remained weaker following the economic data. The dollar index fell to its lowest in a week, 91.547.

The euro, on the other hand, rose to its highest in a week, at US$1.19685. The safe-haven yen traded flat at 108.425 per dollar.

Oil prices resumed their climb following two days of declines, after the Energy Information Administration reported a storage grew more than expected.

U.S. crude futures rose 0.7per cent to US$64.94 per barrel. Brent crude futures rose 0.8per cent to US$68.46 per barrel.

(Reporting by Ritvik Carvalho; additional reporting by Sujata Rao in London and Kevin Buckland in Tokyo; editing by Larry King)

Source: Reuters

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