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Global Equities Hit All-Time Highs Amid Inflation Concerns

Global stocks hit an all-time high on Friday thanks to minor gains that came as investors cautiously balanced more signs of a strong economic recovery from the coronavirus ahead of the U.S. Federal Reserve meeting next week.

The FTSE All-World Index was up 0.1% from its last record, taking the global equity benchmark’s rise to 1.1% this month.

Wall Street’s S&P 500 Index extended an all-time high of just 0.1% on Thursday in first trades in New York, while the tech-focused Nasdaq Composite traded flat.

The European Stoxx 600 stock index rose 0.6% to a record high, supported by cyclical materials and consumer stocks after the European Central Bank revised its growth forecast for the eurozone on Thursday.

“The economic data all continue to improve, but everyone was expecting it,” said Caroline Simmons, UK investment director for UBS Wealth Management. “People are now waiting to see what happens with central banks.”

Next week’s Fed meeting will be closely watched after Vice President Randal Quarles called for talks to cut his $ 120 billion in monthly bond purchases that have supported financial markets since March 2020.

“The Fed is likely to start talking about reducing asset purchases more openly over the next two months, with a view to making some reduction next year,” Simmons said.

A rally in US Treasuries ran out of steam on Friday. Traders anticipated that the Fed would respond to high inflation in the United States by sticking to its view that the high price hikes were a temporary effect of the reopening of industries.

The 10-year US Treasury yield, a benchmark for global debt markets, held steady at 1.458% to stay around its lowest since early March. However, the equivalent yield on the German Bund fell from 0.03% to minus 0.276%, after the ECB pledged on Thursday to maintain the pace of eurozone government bond purchases as part of its pandemic emergency program of 1.85 billion euros.

Data on Thursday showed that headline consumer price inflation in the United States rose 5% in the 12 months to May, the biggest increase since 2008. Investors dismissed the jump “as primarily being due to the price normalization linked to the pandemic, ”said Daiwa economist Chris Scicluna. .

Credit Suisse, however, warned in a research note against a “high level of investor complacency”.

“If another set of high inflation indicators prompts central banks. . . to indicate less patience to keep monetary conditions easy, the markets could be caught off guard, ”the lender said.

“The Fed will likely maintain its conciliatory mantra,” said Ralf Preusser, rates strategist at Bank of America. “But given the lingering upside surprises in inflation, the Fed could find itself on the defensive if inflation expectations start to react more significantly.”

As a sign of a return to cautiousness in the markets, the index measuring the dollar against major currencies rose 0.4% as the safe haven asset became more attractive. The euro fell 0.5% against the dollar to buy $ 1.211, while the pound fell 0.4% to $ 1.412.

Brent crude, the international benchmark for oil, gained 0.1% to $ 72.62 per barrel.

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