European stocks inch higher as global markets assess inflation spikes

European markets were fractionally higher on Friday as global markets shrug off a sharp rise in U.S. inflation, with many strategists believing it to be transitory.

.FTSE FTSE 100 FTSE 7125.57 37.39 0.53 68054890
.GDAXI DAX DAX 15576.74 5.52 0.04 11005929
.FCHI CAC 40 Index CAC 6571.69 25.20 0.39 8331954
The pan-European Stoxx 600 added 0.3% in early trade, with basic resources climbing 1.4% while banks fell 0.6%.

Markets in Asia-Pacific were muted in overnight trade after the S&P 500 sailed to fresh record highs stateside on Thursday. U.S. stock futures were flat in early premarket trade Friday.

The U.S. Labor Department reported a 5% annual increase in its headline consumer price index on Thursday, its fastest rise since 2008. Core inflation, which excludes food and energy prices, rose 3.8% to notch its sharpest increase in nearly three decades.

Investors have been closely watching inflation figures to gauge whether the U.S. Federal Reserve will begin tapering down its unprecedented monetary stimulus program. However, strategists have suggested there is enough evidence in Thursday’s data to sustain the Fed’s assertions that hotter-than-expected inflation will be transitory.

“Within the data, strong contribution continues to come from sectors that are rebounding quickly with pandemic restrictions easing,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

“Additionally, it is still evident that supply chain issues are taking a toll on some sectors with used car prices increasing 7.3% over the month. Figures like today’s CPI will certainly be raising eyebrows at the Fed, but the bottom line is they will likely need additional evidence to determine whether upward inflation pressures will be more persistent.”

A Reuters poll of economists published Thursday found that a majority expect the Fed to announce in August or September a reduction to its massive bond buying program, with cuts to monthly purchases beginning early in 2022.

Back in Europe, G-7 (Group of Seven) leaders meet on Friday in Cornwall, U.K., with British Prime Minister Boris Johnson expecting the collection of the world’s largest economies to agree to donate 1 billion Covid-19 vaccine doses to developing countries.

The leaders are also expected publicly endorse a global minimum corporate tax of at least 15% on Friday, part of a broader agreement to update international tax laws for a globalized, digital economy.

U.K. GDP climbed 2.3% month-on-month in April, according to an initial estimate published Friday, slightly exceeding expectations. The Office for National Statistics said GDP remains 3.7% below its February 2020 pre-pandemic level, but is now 1.2% above its initial recovery peak in October 2020.

Industrial, manufacturing and construction outputs for April came in considerably lower than expected, however.

Stocks on the move
In terms of individual share price movement, Spanish pharmaceutical company Grifols jumped more than 11% in early trade to lead the Stoxx 600.

French reinsurer Scor climbed more than 5% after it reached a truce with mutual insurer Covea following a bitter battle that started with the latter’s failed hostile takeover bid in 2018.

Deutsche Bank shares fell 3.8% after Reuters reported that the European Central Bank has been pressing the German lender on multiple to find a new chairman quickly, ahead of Paul Achleitner’s retirement next May.

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