European stocks advance as rate fears recede

European stocks extended their gains on Friday as US economic data spurred investor hopes that domestic interest rates would peak in coming months.

The region-wide Stoxx 600 rose 0.3 per cent, Germany’s Dax 0.3 per cent and the UK’s FTSE 100 rose 0.2 per cent. France’s Cac 40 pushed on to a record high, up 0.2 per cent.

In futures markets, the blue-chip S&P 500 and the tech-heavy Nasdaq Composite was set to trade flat.

On Thursday, markets were encouraged by US data including the producer price index which showed final demand unexpectedly fell 0.5 per cent in March. New jobless claims data showed the number of people filing for unemployment benefits climbed more than expected to 239,000.

In Europe, industrial production rose as global supply chain issues receded and companies caught up on order backlogs. Economists said the data indicated the world’s big central banks might rein in their series of aggressive interest rate rises to combat inflation.

“After the big hit to the market from turmoil in the banking sector, macro economic fundamentals have improved — with equities and the euro strengthening,” said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.

Analysts at Deutsche Bank said the new revelations painted a conflicting picture of the economic backdrop.

“On the one hand, an array of leading indicators are pointing to a US recession over the coming year . . . But if you wanted to take the opposite view, you could point to unemployment around its lowest in decades . . . along with growing signs that inflation is softening and the Fed are nearing a pause in their rate hikes.”

Investors are pricing in a 70 per cent chance that the Fed will raise rates by 0.25 percentage points at its next meeting in May over leaving them unchanged, and roughly even odds that the ECB will choose half a percentage point over a quarter percentage point rise.

In currency markets, the dollar index, which measures the greenback against six peer currencies, fell 0.2 per cent to its lowest level in nine months.

The euro rose 0.2 per cent after rising to its highest level in a year against the dollar on Thursday. Sterling rose 0.1 per cent against the dollar to £1.25, its highest level in nearly a year.

Two-year Treasury yields fell 0.01 percentage points to 3.96 per cent and 10-year notes fell 0.01 percentage points to 3.44 per cent. Ten-year German Bund yields fell 0.1 percentage points to 2.38 per cent.

In Asia, the CSI 300 rose 0.6 per cent and the Hang Seng index rose 0.4 per cent.

Brent crude fell 0.3 per cent to 85.82 per barrel and WTI, the US equivalent, lost 0.2 per cent to reach $82.01 per barrel. Gold fell 0.1 per cent to $2,038.12, after reaching its highest price since March 2022 on Thursday.