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European stocks advanced on Thursday despite mixed inflation data from Germany and Spain, while US shares ticked higher as traders switched their focus from this month’s banking crisis to the future path of interest rates.
The Europe-wide Stoxx 600 added 1.1 per cent to reach its highest level in two weeks, with Spain’s Ibex 35 up 1.5 per cent and Germany’s Dax up 1.3 per cent. The Stoxx 600 Banks index climbed 1.8 per cent.
In the US, Wall Street’s S&P 500 rose 0.3 per cent and the tech-heavy Nasdaq Composite gained 0.5 per cent in lunchtime trading in New York. Led by technology stocks, both indices have edged higher over the past month despite severe stress in the banking sector. The KBW bank index dipped 1.5 per cent.
The moves came after German inflation fell less than expected to 7.8 per cent in the year to March, from 9.3 per cent in February, as last year’s sharp rise in energy costs dropped out of the index. Economists polled by Reuters had expected a reading of 7.5 per cent.
“Has the disinflationary process started? We don’t think so,” said Carsten Brzeski, global head of macro at ING. “There are still few if any signs of any disinflationary process outside of energy and commodity prices.”
German government bonds sold off, with yields on interest-rate sensitive two-year Bunds down 0.17 percentage points to 2.74 per cent. Bond yields move inversely to prices.
The euro strengthened 0.6 per cent against the US dollar to $1.089.
Spain’s inflation slowed to an annual rate of 3.1 per cent, lower than the 4 per cent forecast by economists polled by Reuters.
The divergence in Spain and Germany’s inflation figures could be largely explained by differences in the rate at which wholesale gas prices — which have fallen sharply since peaking at more than €300/MWh in August — are passed through to consumers in the two countries, according to Jack Allen-Reynolds, European economist at Capital Economics.
The mixed inflation figures pose a dilemma for rate setters at the European Central Bank, which earlier this month raised its benchmark deposit rate from 2.5 per cent to 3 per cent. Markets broadly expect a further quarter percentage point rise when the ECB next meets.
There is less consensus on how the US Federal Reserve will proceed, however, with some traders expecting the federal funds rate to remain unchanged in early May following the failure of three domestic midsized lenders this month.
US bond markets fluctuated, with the yield on the two-year Treasury note up 0.03 percentage points at 4.10 per cent. The yield on the 10-year Treasury was flat at 3.56 per cent.
Initial jobless claims rose by 7,000, slightly more than expected, to 198,000 in the week ending March 25. Gross domestic product for the fourth quarter of last year was revised down to 2.6 per cent from a previous estimate of 2.7 per cent.
Asian equities fluctuated. Hong Kong’s Hang Seng index added 0.5 per cent, China’s CSI 300 gained 0.8 per cent and Japan’s Topix lost 0.6 per cent.
The price of Brent crude rose 1.1 per cent to $79.14 a barrel. Gold, considered a haven asset, rose 0.9 per cent to $1,982 an ounce.
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