Wall Street stocks rally as upbeat earnings balance inflation fears

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Wall Street and European equities rallied on Thursday as investors’ pessimism about inflation and potential interest rate rises was tempered by companies’ earnings reports that indicated consumer demand remained strong.

The blue-chip S&P 500 share index opened 0.9 per cent higher, although it remained around 3 per cent below its all-time high in early September after weeks of choppy trading driven by fears of stagflation. The technology-focused Nasdaq Composite added 1 per cent and Europe’s Stoxx 600 equity benchmark gained 1.1 per cent.

The moves came after Taiwan Semiconductor Manufacturing Company, 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 from the same period last year.

Citibank and Bank of America also posted quarterly earnings that beat analysts’ estimates as both US groups released funds from bad loan reserves in a sign of growing confidence in borrowers’ abilities to repay.

Luxury goods group LVMH said earlier in the week that Chinese demand had held up through a manufacturing slowdown and government crackdown on property speculation.

“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 that 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 stockpicking correctly.”

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.

Minutes from the US Federal Open Market Committee’s latest meeting, published on Wednesday, showed its policymakers were poised to cut its $120bn of monthly bond purchases, which have eased financial conditions through the pandemic.

However, investors were positioned for this signal, along with the latest burst of US inflation.

The yield on the 10-year Treasury note, which moves inversely to its price, edged down 0.01 percentage points on Thursday to 1.535 per cent. This benchmark debt yield has climbed from about 1.3 per cent late last month as prospects of prolonged inflation, which erodes the value of fixed-income products, knocked government bond prices.

US president Joe Biden, meanwhile, has secured agreements from large US businesses to extend working hours to try to ease supply chain bottlenecks. The White House is also pushing energy producers to help reduce fuel costs, Reuters reported.

Brent crude, the international oil benchmark, rose 0.8 per cent to $84.04 on Thursday, around a three-year high as a European natural gas shortage continued with no sign of Russia having increased supplies, despite supportive comments by President Vladimir Putin last week.

In Asia, China’s CSI 300 share index dropped 0.5 per cent. Japan’s Nikkei 225 rose 1.5 per cent as exporters were boosted by the weak yen, which is close to its lowest against the dollar since November 2018.

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