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European shares climb as investors assess path of inflation and rate rises

European shares rose on Friday as investors balanced signs of steadying inflation in the US with questions over the global economic outlook.

The Stoxx Europe 600 added 0.4 per cent, while Germany’s Dax rose 0.6 per cent. London’s FTSE 100 moved 0.5 per cent higher.

Those moves came as fresh data showed that the UK economy contracted in the second quarter of 2022 by 0.1 per cent after rising 0.7 per cent in the previous quarter, with overall figures close to those expected by economists and the Bank of England.

In Asia, Japanese stocks rallied as trading reopened following a holiday on Thursday, after other equity markets were buoyed by US inflation data on Wednesday coming in lower than expected. Japan’s Topix added 2 per cent. Hong Kong’s Hang Seng rose 0.3 per cent.

Closely watched data on Wednesday had shown that the US consumer price index rose 8.5 per cent year on year in July, below economists’ forecasts and the 9.1 per cent recorded in June, with no increase in CPI month on month to July.

On Thursday, separate data revealed that prices paid to US producers for goods and services registered an unexpected fall last month, due to lower petrol costs. The PPI index dropped 0.5 per cent between June and July, its first monthly decline since April 2020.

Despite those signs of steadying price growth, Wall Street stock markets closed lower on Thursday, with inflation remaining high and investors looking ahead to further interest rate rises by the US Federal Reserve. The broad S&P 500 lost 0.1 per cent and the tech-heavy Nasdaq Composite slipped 0.6 per cent. Both had rallied on Wednesday.

Trading volumes can be thinner during the summer, exacerbating asset price moves.

“Maybe we shouldn’t read too much into summer illiquidity but the moves have been a bit all over the place of late,” wrote Jim Reid, a strategist at Deutsche Bank.

US government bonds steadied on Friday, with the yield on the benchmark 10-year Treasury note trading flat at 2.9 per cent after climbing in the previous session. Yields move in the opposite direction of their prices.

In UK debt markets, the 10-year gilt yield rose 0.06 percentage points to 2.12 per cent following the morning’s fresh GDP data, while the pound slipped 0.3 per cent against the dollar to $1.22.

International oil benchmark Brent crude added 0.2 per cent to $99.81 per barrel.

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