European equities wavered higher after investors shrugged off an economic activity survey showed early evidence that the euro area is rebounding from a double-dip recession.
The regional Stoxx 600 index, which has hovered around a record high for the past month as traders balanced the recovery in the eurozone from the pandemic with the prospect of global central banks reducing crisis-era stimulus, added 0.1 per cent in early dealings. London’s FTSE 100 fell 0.4 per cent.
IHS Markit’s purchasing managers’ index, based on manufacturing and service sector executives’ responses to questions on topics such as hiring plans and new business, hit a 39-month high with an expansionary reading of 56.9 A reading of 50 separates growth from contraction.
A US version of the important early indicator of changes in economic output is expected to moderate slightly from the record high it reached in April.
“There is a sequencing in the global recovery, with Europe lagging by a [calendar] quarter or two,” said Agnès Belaisch, chief European strategist at fund manager Barings. “Europe is a very big economic power and it is finally reopening.”
While the PMI surveys are closely scrutinised for signs of economic recovery, however, they are also viewed as a source of information about inflationary pressures that might cause central banks to alter the pace or timelines of their asset purchases. April’s US survey identified supply-chain shortages that caused prices of securities that are sensitive to changing monetary policy expectation, such as government bonds and technology shares, to fall.
“While economic activity is steadily improving, what equity markets will internalise is that there is less cause for support on the monetary policy front as the data improves,” said Mobeen Tahir, research director at WisdomTree.
The price of spot gold, perceived as a hedge against inflation which erodes the real returns from other assets such as stocks and bonds, rose to $1,878 an ounce on Friday, its highest since January.
Bond markets were unmoved by the PMI survey, however. The yield on the US 10-year Treasury, dipped by 0.02 percentage points to 1.618 per cent. Germany’s equivalent Bund yield fell by 0.02 percentage points to minus 0.124 per cent.
The 10-year yield, which sets the discount rate professional investors use to value equities, has climbed from about 0.9 per cent at the start of the year because of expectations the Federal Reserve would begin reducing its $120bn of monthly bond purchases that have supported financial markets throughout the pandemic.
On Wednesday, minutes of the Fed’s latest meeting showed some of its rate-setters thought the central bank should “at some point in upcoming meetings,” start to discuss “a plan for adjusting the pace of asset purchases”.
Currency markets were steady on Friday. The dollar index, which measures the greenback against trading partners’ currencies, was flat. The euro was steady against the dollar, purchasing $1.2233. Sterling fell less than 0.01 per cent to $1.4178.
In Asia, Japan’s Topix closed 0.5 per cent higher and China’s CSI 300 index fell 1 per cent, weighed on by geopolitical concerns.