LONDON: Europe’s main stock markets pushed higher on Tuesday as investors reacted to a surprise dip in British inflation and shrugged off slower-than-expected German economic growth. Meanwhile, on Wall Street the Dow pulled off a record close after six-day winning streak as US markets continued to adjust following last week’s tumultuous post-election trading sessions, although both the broader S&P 500 and tech-heavy Nasdaq Composite were higher approaching midday. “Stock markets rose once more today, as hopes of a high growth period based on substantial fiscal stimulus continued to stoke the embers of last week’s US election,” said analyst Joshua Mahony at online trading firm IG.
London’s benchmark FTSE 100 index closed 0.6 percent higher, helped by a lower pound after a surprise drop in inflation. Britain’s annual inflation rate eased to 0.9 percent in October compared with 1.0 percent a month earlier, despite a Brexit-triggered slump in the pound lifting imported raw material costs for British firms. The figure took analysts, who had pencilled in a slight increase, by surprise and helped push the pound lower. But UniCredit Research economist Daniel Vernazza said the easing in inflation was “just a blip in what is a strongly upward trend”. Frankfurt’s DAX 30 added 0.4 percent higher despite data showing German economic growth slowed more sharply than expected in the third quarter.
That disappointment was counterbalanced by a leap in German investor morale in November, although respondents questioned after Donald Trump’s shock US election victory were less optimistic about the future. Most Asian emerging markets rose after the previous day’s heavy losses but traders remained on edge over Trump’s plans for global trade agreements. While shares in developed economies have rallied and safe-haven sovereign debt prices have fallen, many trading floors in Asia have taken a hit recently over worries Trump will throw up tariffs to the world’s biggest economy. His plans for huge spending and tax cuts at home have also fanned expectations the Federal Reserve will hike interest rates more sharply than initially planned, sending the dollar soaring and fuelling an exodus from emerging markets. However, after a two-day retreat on most regional bourses, there was a tentative recovery with Manila up 0.3 percent, Jakarta 0.5 percent higher and Bangkok adding 0.2 percent.
Tokyo, though, was marginally lower, having surged more than eight percent to a nine-month high since Thursday on the back of a rally in the dollar against the yen. “Risks are elevated, and we are expecting further increases in volatility as markets attempt to second-guess the policies that might eventually come out from the US,” Michael McCarthy, chief market strategist at CMC Markets in Sydney. The dollar struck a new five-and-a-half month high of 109.06 yen, and traders suggested it could test the 110 yen mark as soon as this week, with eyes on Fed chief Janet Yellen’s congressional testimony later this week. The central bank is widely expected to hike borrowing costs next month but her remarks Thursday will be pored over for clues about plans for next year. That has played havoc in bond markets, where investors are now seeking higher returns.
Analysts at Capital Economics noted that capitalisation of Barclays “Multiverse” global bond index is around $1.5 trillion lower now than on November 8. “However, this only represents a decline of roughly 3 percent,” said Capital Economics’s chief global economist, Julian Jessop, and also partly reflects the surge in the dollar. Oil prices surged on renewed hopes that OPEC can reach a deal to cap output before it holds its twice-yearly meeting this month. The commodity has come under pressure in recent weeks, though, on worries the OPEC deal would fall apart and on a stronger dollar, which makes it more expensive for holders of other currencies.