European stocks: inflation reaches 10% record

Spain, Portugal, and Italy were three European nations that continued to raise concerns. This undoubtedly contributed to the lack of investor confidence. Additionally, investors might have believed that investing in China, Asia, or emerging market fixed income assets was a better choice than purchasing European stocks.

The situation has changed this year. First of all, investors are less concerned than they were last year. This is due to the EU’s improved institutional mechanisms, which give them more confidence about the situation. Additionally, the decline in oil prices has boosted consumer spending in Europe by raising disposable income and helping businesses increase their profit margins (energy costs falling, revenues increasing).

The European Central Bank (ECB) began its own €60 billion monthly asset buying program in March, which is assisting in maintaining low borrowing costs and fixed income yields, which are less attractive than stocks. I believe the German and French 10-year bonds reached all-time lows in March of 0.18% and 0.45%, respectively (versus 1.97% in the US). The USD’s strength is boosting European exports and the eurozone’s real wage growth, and unemployment is finally declining. The former crisis nations of Spain and Portugal, which had exorbitantly high unemployment rates, have exited recession, with their rates falling by 2% in the first three months of 2021. Asia and emerging markets also don’t seem to be as appealing as they once were.

On Friday, European stocks edged up a little. This happened as government bond yields declined from recent highs. However higher-than-expected inflation kept the markets under pressure.

European stocks move upwards

Data indicating that China’s factories resumed growth in August. Japan’s factories increased output in that month did nothing to reassure investors. However, there was some improvement in European stock prices. However they still have a third straight quarter of losses. Investors were concerned about how central banks raising interest rates to fight inflation would affect global economic development.

According to David Madden, a market analyst at Equiti Capital, a decrease in government bond yields allowed equities to increase marginally, but this was not likely to signal the beginning of a more sustained rebound. The overall picture hasn’t altered, he said, as yields are on the rise, inflation is still quite high, and interest rates are expected to rise further.

The 47-country MSCI world stock index, which measures shares, increased 0.2% today. STOXX 600 in Europe gained 1.1%, but it was expected to lose money on a weekly, monthly, and quarterly basis.

European government bond yields decreased. With Germany’s 10-year yield falling by 10 basis points to 2.115% from its 11-year high of 2.352% on Wednesday. The dollar index, which reached a 20-year high on Wednesday. This was unchanged for the day at 111.76, as currency markets stabilized. This year, the dollar index has increased by more than 16%.

The quarter would be its lowest against the dollar since 2008. Further Wall Street sell-offs were sparked by Thursday’s strong U.S. jobs data. It was seen as supporting the case for future Federal Reserve rate hikes. Overnight, Fed officials reiterated their concerns about inflation in hawkish remarks. A first weekly increase in five weeks, and they were on course to achieve it.

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