U.S. shares fall despite fears of longer-term inflation

3 minutes

LONDON SHANGHAI, June 11 : Shares fell on Friday and bond yields fell from Europe to the United States as investors shrugged off rising US consumers' prices even as the fears of longer-term inflation lingered.

The Euro STOXX 600 added 0.3% to hit a record high and was on the course for a sixth straight day of gains. London shares rose 0.6%, helped by a 1% gain in the mining sector, while Paris rose 0.4%.

Also helping to boost the sentiment in Europe was the European Central Bank on Thursday, which raised its growth and inflation projections while pledging a steady flow of stimulus for now.

The MSCI World Equity Index, which tracks shares in 49 countries, gained 0.1%. Wall Street futures were flat.

The U.S. Consumer Price Index posted its biggest gain in the year since August 2008 of 5%, following a 4.2% increase on April. Hefty contributions from used airline ticket prices and short-term vehicles raised doubts about underlying inflationary pressures.

The rise in the U.S. Consumer price index reflects short-term adjustments related to the reopening of economy, some economists say. As such, many investors are confident the Federal Reserve is doing a good job of managing economic growth - though its definition of transitory remains unclear.

At the same time, recent IRS numbers showed the lowest level of new claims for unemployment benefits in nearly 15 months last week.

U.S. stocks moved to three-month highs on the data, with 10-year Treasury yields also falling to a record low.

Market players said inflation worries have faded over the last month - even though the spectre of great pressure over the longer term remains.

Peak inflation concerns came in almost a month before the higher rates came in, said Kiran Ganesh, head of multi asset at UBS Global Wealth Management in London. Markets seem to be taking the Fed at its word, but when we talk to clients there is concern about long-term inflation.

Bank notes followed suit on Friday with German 10-year yields set for their biggest fall this year. Yields move with prices inversely.

The lowest index of Asia-Pacific shares outside Japan was last up by 0.4%.

Falling expectations that higher inflation could lead to early Fed tightening caused a flattening of the yield curve, with the spread between the 10 - year and 2 - year yield at its narrowest since late February on Friday.

The 10-year Treasury yields were on course for the steepest drop in weekly if they were in 10 years. The 30 year yield has touched 2.1270%, the lowest since Feb. 26.

Investors said that the yields would move higher again now as economies reopen from coronavirus lockdowns.

We still think consumers are going to make the prices higher when these economies reopen properly, so that people can start travelling again and spending again, said Jeremy Gatto, portfolio manager at Unigestion.

From the consumption side, we will get a further boost and we expect bond yields moving higher.

In the U.S. dollar, the currency dipped as yields fell. Against a basket of currencies it fell slightly to 90.045, was hammed into the relatively tight trading range of this week and detuned little for the week.

The dovish pledge of the ECB to stick with its elevated tempo of bond buying kept the euro in check at $1.2185.

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