European stocks edge higher, euro zone inflation hits record 10%

[September 30, 2022]  By Elizabeth Howcroft

LONDON (Reuters) - European stocks were a touch higher on Friday as government bond yields pulled back from recent peaks, but higher-than-expected inflation continued to weigh on markets.

After a week of market turmoil in which recession fears sapped stocks and currency markets were rocked by dollar strength, Asian shares fell on Friday and were on track for their biggest monthly loss since the start of the pandemic in 2020.

Investors took little comfort from data showing that Japan's factories ramped up output in August and China's factory activity returned to growth.

But European shares saw some recovery, although they remained on track for a third consecutive quarter of losses as markets worried about the impact on global growth of central banks hiking interest rates to counter inflation.

Euro zone inflation hit a record high of 10% in September, surpassing forecasts for a 9.7% rise, flash inflation data showed.
 

David Madden, market analyst at Equiti Capital, said a pullback in government bond yields enabled stocks to edge up, but this was unlikely to be the start of a longer recovery.

"The big picture hasn’t changed: yields are an upward trend, inflation is still really high, interest rates are set to continue on the path of higher rates," he said.

At 0909 GMT, the MSCI world equity index, which tracks shares in 47 countries, was up 0.2% on the day

Europe's STOXX 600 was up 1.1% but set for a loss on a weekly, monthly and quarterly basis.

The German share price index DAX graph is pictured following the IPO of Porsche at the stock exchange in Frankfurt, Germany, September 29, 2022. REUTERS/Staff

European government bond yields fell, with Germany's 10-year yield down 10 basis points at 2.115%, compared to Wednesday's peak of 2.352%, which was an 11-year high.

Currency markets calmed, with the dollar index flat on the day at 111.76, after hitting a 20-year high on Wednesday. The dollar index has risen more than 16% this year.

The British pound, which had been driven to all-time lows by a combination of dollar strength and the government's plans for tax cuts funded by borrowing, was up 0.6% on the day at $1.119, after moves by the Bank Of England helped calm markets.

It was still on track for its worst quarter versus the dollar since 2008.

Data on Thursday showed German inflation at its highest in more than 25 years, driven by high energy prices.

European Central Bank policymakers voiced more support for a large rate hike.

Strong U.S. jobs data on Thursday prompted further Wall Street sell-offs, as the data was seen contributing to the rationale for more Federal Reserve rate hikes. Fed officials made hawkish comments overnight, reiterating concerns about inflation.

Oil prices were on track for their first weekly gain in five weeks.

(Reporting by Elizabeth Howcroft; Editing by Mark Potter and Angus MacSwan)

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