LDN - Business

Stocks advance on robust earnings, inflation fears ebb for now

[October 15, 2021] By Huw Jones

LONDON (Reuters) - Stocks advanced on Friday as strong earnings kicked off a new results season on Wall Street and fears that inflation will trigger earlier-than-expected interest rate rises eased for now.

The MSCI All World Share Index was up 0.31%.

U.S. stock futures were about 0.4% higher, with investors waiting for the latest U.S. retail sales figures, and inflation expectations from the University of Michigan.

Earnings from Goldman Sachs were expected to be in line with strong results on Thursday from several of its U.S. peers which propelled shares higher.

"The overall mood is buy the bid, there is no alternative to equities. We have come out with this enthusiasm about earnings coming back and optimism coming through," said Kit Juckes, global fixed income strategist at SocGen.

In Europe, the STOXX index of 600 European shares was up 0.3%, hitting a three-week high.

Britain's FTSE 100 gained 0.2%, with the UK blue-chip index recovering all ground lost since the coronavirus pandemic began in March last year, but analysts warned over complacency in markets.

"Markets have been trying to make up their mind on whether inflation is transitory, are supply chain disruptions are going to translate into higher costs," said Mike Hewson, chief markets analyst at CMC Markets.

"But this week's earnings from various companies are assuaging some of those concerns that companies won't be able to pass on some of these cost rises to consumers, and that's why we are seeing the increase in risk," Hewson said.

The return of optimism will be tested by next week's anticipated weaker growth data from China and the impact of strengthening oil prices on consumers going into the winter months, Hewson said.

European car registrations slumped by more than a quarter in September, and Toyota Motor Corp said it would cut global output in November as chip shortages and supply chain problems continued to dog the sector.

Investors were also trying to figure out where bonds go next.

"With no strong case for either direction and many investors likely to be sitting on a dismal performance as major fixed income indices are in the red year-to-date, yield volatility is likely to remain elevated in the coming months," UniCredit told clients in a note.

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Graphic: Fund flows into global equities bonds and money markets https://fingfx.thomsonreuters.com/
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BRENT AND BITCOIN

Oil prices were at multi-year highs, a drag on growth in energy-importing markets in north Asia, but good news for some energy-exporting markets in Southeast Asia.

U.S. crude gained 0.9% to $82.05 a barrel, back near Monday's seven-year high of $82.18. Brent crude rose 1% to $84.91 per barrel, around its three-year high hit on Monday. [O/R]

Bitcoin hit a six-month high of $60,000 on Friday, approaching the record hit in April, as traders became increasingly confident U.S. regulators would approve the launch of an exchange-traded fund based on its futures contracts.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 1.2%, and was set for a 1.7% weekly gain, which would be its best weekly performance since early September, while Japan's Nikkei surged 1.81%, led by tech stocks.

Analysts largely attributed the gains in Asia to the U.S. rally.

Chinese shares rose more cautiously than elsewhere with blue chips up 0.38% ahead of next week's growth figures.

"We expect GDP growth to slow to 4.6% year-on-year in the third quarter from 5.6% previously, in view of persistent weakness in consumption and services amid repeated COVID outbreaks, and the fading of the low year-earlier base," said Barclays analysts in a note.

In currency markets, the dollar rose again to a near three- year high versus the yen with one dollar buying 114.32 yen, the most since late 2018.

The dollar index, which measures the greenback against a basket of currencies, was marginally lower on the day, at 93.89 and set for its first weekly decline versus major peers since the start of last month, having lost a little ground to sterling and the euro.

The yield on benchmark 10-year Treasury notes was 1.5388%, slightly higher on the day, after trending downwards this week from Tuesday's four-month high of 1.631%.

Graphic: Bitcoin on the rise https://fingfx.thomsonreuters.com/
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(Reporting by Huw Jones, additional reporting by Alun John; Editing by Susan Fenton, Kirsten Donovan)

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