Stocks on Wall Street moved further into record territory on Friday as investors shrugged off a high US inflation reading to focus on President Joe Biden’s stimulus deal.
The S&P 500 was up 0.3 per cent at mid-afternoon in New York, putting the blue-chip index on course for another record close. The broad benchmark was heading for a weekly gain of 2.7 per cent, its best performance since early April, while the tech-focused Nasdaq Composite was flat for the session.
“If enacted, [the infrastructure plan] would increase GDP by roughly 1 percent at its peak effect in 2025-26,” a note by Evercore ISI Research predicts.
The infrastructure deal overshadowed Friday’s release of data showing core personal consumption expenditure in the US — the Federal Reserve’s preferred measure of price rises — hitting 3.4 per cent in the 12 months to May, its largest annual increase for 29 years.
The month-on-month inflation rise was slightly below economists’ expectations, however, potentially taking some pressure off the US central bank to change its ultra-loose monetary policy.
“We’re seeing a small sigh of relief, with equities also supported by the infrastructure news,” said Keith Parker, chief US equity strategist at UBS. Expectations that companies would report strong second-quarter earnings as they reaped the benefits of the US economy’s reopening were also “a strong tailwind”, he added.
Government debt prices softened following the inflation data. Ten-year US Treasury yields were at 1.53 per cent.
Investors holding bonds, which are more sensitive to inflation than equities, fear price rises are becoming more persistent. For the first time since April 2018, inflation was the issue credit investors were most worried about, according to a Bank of America survey published on Friday.
“There is little doubt that inflation prints in the next few months will continue to be high,” said Francesco Sandrini, senior multi-asset strategist at fund manager Amundi.
“But markets are struggling to find confidence in terms of what to do about it” following mixed messages from Fed officials about whether price rises should result in tighter monetary policy, he said.
Fed chair Jay Powell has continued to characterise surging prices as “transient” but St Louis Fed president James Bullard indicated on Thursday he thought price rises could be problematic. “A new risk is that inflation may continue to surprise to the upside,” he said in a presentation.
Schroders strategist Sean Markowicz said: “What we might see into next year is that higher commodity prices will feed into higher input prices, which feed into higher consumer prices and then higher wages.”
That left open the question of whether Powell’s “transient” inflation “means six, 12, 18 months or more”, added Markowicz.
In Europe, the Stoxx 600 index closed up 0.1 per cent, leaving the continent-wide benchmark up 1.2 per cent for the week.
The recent rally in oil gathered pace, with Brent crude climbing a further 0.5 per cent to above $76 a barrel, the global marker’s highest level since October 2018.
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