European stocks advanced to fresh all-time highs on Friday as investors shrugged off rising US inflation to focus on expectations of a more robust recovery in the region after the ECB lifted its economic projections on Thursday. The report showed consumer prices rose 5% in May, the biggest year-over-year increase since 2008. However, stocks gained as investors are still buying into the Federal Reserve’s stance that the current rise in inflation is transitory. Meanwhile, the European Central Bank raised its growth and inflation projections, while pledging a steady flow of stimulus.
Elsewhere, the European Central Bank policymaker Klaas Knot said that some upside risks slipping into the inflation outlook. Earlier, he noted that the Eurozone fiscal policy must keep a large role for years. Meanwhile, ECB's Holzmann said that Inflation above 3% would prompt the central bank’s strategy review.
On the data front, in Germany, wholesale price index came in at +1.7% in May versus +1.1% m/m prior. The UK April monthly GDP arrived at+2.3% versus +2.4% m/m expected. Also, Bundesbank upgraded its forecast on the German economy for the year - 2021 GDP now seen at 3.7% versus 3.0% previously.
Against this backdrop, the UK FTSE 100 gains 0.65% to 7,134, Italy’s FTSE MIB is flat at 25,640, France’s CAC 40 adds 0.52% to 6,580, while the German DAX 30 gains 0.17% 15,598. US stock index futures look directionless so far ahead of the consumer sentiment index for the month of June due later today.
In currencies, the USD index manages to keep trading above the 90.00 figure for the time being. The index struggles to see a more robust recovery after yields of the key US 10-year reference dropped to levels last seen in early March despite higher-than-expected inflation figures. As such, EURUSD failed to overcome the 20-DMA once again earlier in the day on Friday to turn slightly negative in recent trading. If the pressure intensifies any time soon, the pair could challenge the 1.2150 intermediate support. Elsewhere, oil prices resumed the ascent following failed bearish attempts. Brent crude regained the $72 handle, targeting the $73 figure last seen more than two years ago. In its latest monthly report, the IEA said global oil demand to surpass pre-pandemic levels by end of next year. The agency expects total oil supply from OPEC+ to increase by 800k barrels per day based on existing policy. The comments helped reaffirm a bullish sentiment towards the oil market in general.
Nathan Lambert, Head of Global FX Analytical Department