Wall Street and European equities ticked up on Wednesday as investors considered mixed reports on how large businesses were managing inflationary pressures.
The S&P 500 rose 0.2 per cent in early New York dealings, after closing 0.7 per cent higher on Tuesday. The blue-chip index traded just below its all-time closing high of early September, despite a choppy few weeks of trading before earnings season started.
The technology-focused Nasdaq Composite added 0.2 per cent, on track for its fifth session of gains. In Europe, the regional Stoxx 600 index added 0.2 per cent, taking its gain through October to almost 3 per cent this month thanks to optimism around the ongoing quarterly earnings season.
The moves came after consumer goods group Nestlé lifted its full-year earnings guidance as it raised product prices to counteract rising input costs. Consumer goods bellwether Procter & Gamble on Tuesday also said it would raise prices and maintained its full-year earnings outlook.
Dutch paintmaker Akzo Nobel reported weaker than expected quarterly results on Wednesday, however, citing raw material price inflation and supply chain disruptions. Headline consumer price inflation in the US has exceeded 5 per cent for four months and hit a 29-year high in Germany.
“Right now we seem to have enough earnings power on equity markets to offset macroeconomic headwinds,” said Marija Veitmane, senior strategist at State Street. “But while some companies have shown they are currently able to pass higher costs on to the consumer and maintain margins, it is too early to tell if this will be a long-term trend.”
The yield on the benchmark US Treasury note, which moves inversely to its price, was steady at 1.64 per cent, close to its highest since May. Germany’s equivalent Bund yield was flat at minus 0.123 per cent.
Later on Wednesday, the Federal Reserve will release its regular Beige Book assessment of the US economy. Half of the Fed’s rate setters expect to raise interest rates from their current record low next year but the world’s most influential central bank still describes inflationary pressures as transitory.
Investors were likely to scrutinise the Beige Book for evidence that price rises are broadening out from pandemic-related supply chain bottlenecks and becoming more prolonged, said Valentijn van Nieuwenhuijzen, chief investment officer of NN Investment Partners.
“Markets are in agreement with central banks that inflation is temporary and will not be persisting into 2023. Only when it changes will the expectations about central banks [monetary policy] shift materially.”
In Asia, Hong Kong’s Hang Seng index rose 1.4 per cent while Tokyo’s Topix closed flat.
In currencies, sterling steadied against the dollar, buying $1.38, after data showed annual UK consumer price inflation declined slightly to 3.1 per cent in September. The UK currency jumped as much as 0.7 per cent against its UK counterpart on Tuesday as traders bet on the Bank of England raising interest rates.
“The Bank of England will need to hike interest rates in December and likely also in February to rein in inflation fears,” Liberum strategists Joachim Klement and Susana Cruz commented in a note to clients after the inflation data were released, noting that Wednesday’s report showed “continued elevated inflation pressures in the UK”.
The dollar index, which measures the US currency against six others, traded flat.
Brent crude, the oil benchmark, fell 1.1 per cent to $84.13 a barrel.
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