US stocks chipped out small gains on Friday as traders took hotter than expected producer prices as another sign that the central bank would keep interest rates higher for longer to curb rising inflation.
The benchmark S&P 500 rose 0.1 per cent and the tech-heavy Nasdaq was up 0.3 per cent in morning trading in New York after the latest US producer price index rose 0.3 per cent month on month in November, more than the 0.2 per cent forecast by economists.
Gains in New York boosted stocks in Europe, with the Stoxx 600 rising 0.8 per cent and Germany’s Dax up 0.7 per cent.
Economists said the stronger than anticipated reading was unlikely to deter the Federal Reserve from raising rates next week because the fight against inflation is far from finished.
“A 0.5 percentage point rise [from the Fed] looks pretty nailed on at this point,” said Neil Shearing, chief economist at Capital Economics. High rates of inflation have forced the central bank to implement four 0.75 percentage point rises, bringing its main policy rate to between 3.75 per cent and 4 per cent.
US government debt sold off, with the two-year Treasury yield up 0.01 percentage points to reach 4.30 per cent and the 10-year yield gaining 0.05 percentage points to 3.54 per cent. Yields fall as prices rise.
Government bonds typically fall in price as borrowing costs rise, as higher interest rates eat into the real returns on fixed-interest securities. The yield on 10-year US government debt in late October hit 4.24 per cent, its highest level since the financial crisis in 2008, but it has fallen since as inflationary pressures have subsided.
“While most are fretting about how far the Fed will go to curb inflation, the bond market has already moved on,” said Jim Paulsen, chief investment strategist at the Leuthold Group.
Asian stocks, meanwhile, climbed as relaxations to China’s zero-Covid policy boosted investors’ hopes that the world’s second-biggest economy would reopen early next year.
Hong Kong’s Hang Seng index added 2.3 per cent and has risen more than a fifth in the past month.
The Hang Seng Mainland Properties index, which tracks some of China’s largest developers, rose 9.9 per cent during the session, bolstered by Beijing’s recent moves to end a ban on equity refinancing and extend $162bn in loans through state banks. Country Garden, the country’s biggest real estate company by sales, added 8.5 per cent.
China’s real estate developers have endured a difficult year and the HSMP remains on track for its worst year in a decade despite having risen 33 per cent this quarter.
Mainland China stocks also ticked higher, with the CSI 300 index of Shanghai- and Shenzhen-listed shares gaining 1 per cent.
The moves come as Beijing prioritises economic growth over suppressing the virus for the first time since the pandemic began. Analysts, however, caution that infections are likely to surge as a result, delaying a swift reopening of the economy.
“Activity will probably remain depressed until the second half of 2023, with the reopening infection wave keeping many people at home,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
Oil prices rose from year-to-date lows, with Brent crude, the international oil benchmark, up 0.1 per cent at $76.24 a barrel.
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