World stocks index soared on Friday, May 11, as investor appetite for risky assets got a boost from soft U.S. inflation numbers, helping soothe worries that the Federal Reserve might step up the pace of its rate hikes.
The MSCI All Country World Index, which tracks shares in 47 countries, was up 0.3 percent and was set for its best week since March 9. The dollar was flat against a basket of currencies.
Thursday’s soft U.S. inflation numbers followed employment data last week that pointed to sluggish wage growth.
While the rally in stocks seemed to point to investor relief, analysts were split over whether the slowdown in inflation could lower the chances of the Fed increasing the number of rate hikes it has suggested will take place this year. Federal Reserve Bank of St. Louis’ James Bullard will make a speech on Friday, as will European Central Bank President Mario Draghi.
Konstantinos Anthis, head of Research at ADS Securities, said the case for two or three further U.S. rate hikes could be decided after the summer. Fed funds futures show a 93 percent chance of one next month.
“The data from the U.S. for the past few months has been supportive so if this trend is to continue there’s plenty of time for the Fed to witness stronger performance again and grow more aggressive,” Anthis said.
Softer inflation numbers also flattened the U.S. Treasury yield curve further, with the gap between 5- and 30-year bonds at its narrowest since 2007. Investors also bought up southern European government bonds, taking advantage of a rise in yields on the back of Italian political concerns.
Italian, Spanish and Portuguese 10-year borrowing costs fell 2-3 basis points, outpacing better-rated peers at the end of a week in which the increasing likelihood of an anti-establishment coalition taking power in Italy had hurt the euro zone’s lower-rated debt.
Italian 10-year yields were set for their biggest weekly rise since February.
European stocks, meanwhile, were set to seal their longest winning streak in over three years as fresh deal-making stole the spotlight from the tail-end of a busy earnings season.
The pan-European STOXX 600 was flat, but set for its seventh straight week of gains – its longest winning streak since March 2015. Germany’s DAX was down 0.1 percent and Britain’s FTSE 100 was flat.
Asian markets were cheered by a further easing in tensions on the Korean Peninsula, after U.S. President Donald Trump said he would meet North Korean leader Kim Jong Un in Singapore on June 12 for talks on Pyongyang’s nuclear weapons program.
MSCI’s broadest index of Asia-Pacific shares outside Japan . rose 0.7 percent to near three-week highs with broad-based gains across all sectors. Japan’s Nikkei climbed 1.2 percent.
