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European stocks open higher as earnings reports balance inflationary data

European stock markets trended higher on Thursday as investors’ pessimism about inflation and potential interest rate rises was tempered by companies’ earnings reports that indicated consumer demand remained strong.

Europe’s Stoxx 600 share index opened 0.7 per cent higher, remaining about 3 per cent below its all-time high of early September. London’s FTSE 100 also gained 0.7 per cent.

The moves came after Taiwanese chip supplier TSMC, whose products are used in everything from iPhones to cars, posted a better than expected 14 per cent rise in profits for the third quarter, compared with the same period last year.

This followed a strong update from luxury goods group LVMH earlier in the week, which said Chinese demand had not slowed despite the country’s decelerating growth and a government crackdown on property speculation.

Data published on Wednesday showed headline US consumer prices rose 5.4 per cent year on year in September, marking the fifth consecutive month of annual increases of 5 per cent or more.

On Thursday morning, China’s official measure of factory gate prices showed a 10.7 per cent surge in September, the fastest increase in 25 years after record coal prices pushed manufacturers’ costs higher.

“The debate has been over whether we have so many constraints that economies can’t grow much at all, or is underlying demand so strong than companies can still do good business,” said Maarten Geerdink, head of European equities at NN Investment Partners.

“A couple of good [earnings] reports coming in has given us faith that things won’t be that bad if you do your stock picking correctly.”

Minutes from the US central bank’s latest meeting, published on Wednesday, showed its policymakers were ready to start reducing its $120bn of monthly bond purchases, which have eased financial conditions through the pandemic, as early as next month.

Investors had spent the past few weeks positioning themselves for such a signal, along with the latest burst of US inflation, however. The yield on the 10-year Treasury note, which moves inversely to its price, was steady on Thursday morning at 1.549 per cent.

This benchmark debt yield has climbed from around 1.3 per cent late last month as prospects of prolonged inflation, which erodes the value of fixed income products, knocked government bond prices.

Fed officials also said they expected improvement in the jobs market as the global economy continues to recover from the shocks of the coronavirus pandemic.

US president Joe Biden, meanwhile, has secured agreements from large US businesses to extend working hours, with a view to easing supply chain bottlenecks. The White House is also pushing oil and gas producers to help bring down spiralling fuel costs, Reuters reported on Wednesday.

Brent crude, the international oil benchmark, fell 1.1 per cent to $82.5 a barrel after hitting its latest three-year high of $83.7 earlier in the week.

The dollar index, which measures the currency against six others, fell 0.2 per cent after hitting its highest point in a year on Wednesday.

In Asia, China’s CSI 300 share index dropped 0.5 per cent as property shares fell because of fears of continued bond defaults by indebted developers. Japan’s Nikkei 225 closed 1.5 per cent higher as exporters were boosted by the weak yen, which is trading close to its lowest against the dollar since November 2018.

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