Stocks show resilience to wall of rates and inflation worries

Global shares were steady on Friday as investors scrutinised inflation data from both sides of the Atlantic to cap a rollercoaster quarter for markets that upended bets on interest rates peaking.

Oil was poised for its first monthly gain this year, as a big drawdown in U.S. oil stocks outweighed concerns that fuel demand will be dented further by more hikes in borrowing costs.

The dollar was on track to reverse two quarters of losses against six major peers on the prospect of more U.S. interest rate hikes to tame inflation. Gold was set for its worst quarter since September last year on expectations of more rate hikes.

The MSCI All Country stock index was slightly firmer and heading for first-half gains of about 11.5%, recouping over half of last year’s losses, thanks in part to the AI boom lighting a fire under Big Tech.

“Despite rising rates and worries of a recession, the market continues to climb a wall of worry and I think earnings will justify the multiples expansion that we’ve seen this year,” said Patrick Spencer, vice chair of equities as RW Baird.

“We have got to accept that we’re moving into a period of normalised interest rates of 3, 4 or 5%, and historically they are not particularly high rates… but the disinflationary argument is very much there,” Spencer said.

In Europe, the STOXX index of 600 companies was 0.6% ahead, and ahead 7.5% so far this year.

Prices in the euro zone painted a mixed picture, with French inflation easing more than expected in June, while German inflation rose more than expected in the same month, interrupting a steady decline since the start of the year.

Spain saw consumer prices fall in June to below 2%, their lowest since March 2021.

Investors will also focus on the U.S. Personal Consumption Expenditures (PCE) index reading, the Fed’s favoured inflation gauge, due before the opening bell on Wall Street.

Federal Reserve Chair Jerome Powell signalled on Thursday that the U.S. central bank was likely to resume its monetary tightening campaign after a break earlier this month.

U.S. stock index futures < were steady to slightly firmer. CHINA STIMULUS? Stocks in Asia inched higher as weak factory activity data from China stoked expectations of fresh stimulus. Copper prices were set for their biggest quarterly fall since September 2022 on the weak Chinese data and prospects of further U.S. rate hikes. The yen remained fragile after hitting the psychologically important barrier of 145 per dollar, fuelling intervention worries as Japan's Finance Minister Shunichi Suzuki issued another warning against excessive weakening of the currency. MSCI's broadest index of Asia-Pacific shares outside Japan was 0.1% higher, on course to eke out a gain of just over 1% in the first half of the year. "There is a growing divergence in the path of inflation across the region, which is leading to some disagreement about the right path for policy," said Rob Carnell, ING's regional head of research, Asia-Pacific. China's blue-chip CSI300 Index and the Shanghai Composite Index rose about 0.5%, while Hong Kong's Hang Seng Index was flat. Japan's Nikkei ended slightly lower but surged 27% in the first half, driven by a boom in chip-related companies and inflows into trading houses. (T) Strong U.S. economic data sent Treasury yields higher, with the yield on 10-year Treasury notes touching a three-month high on Thursday. It was last at 3.8858%. U.S. crude was up 0.5% at $70.25 per barrel and Brent was at $74.88, also up 0.5% on the day.[O/R] Gold prices were slightly weaker at $1,905 per ounce, after briefly dropping below the key $1,900 level on Thursday for the first time since mid-March.