European stocks head for record run as summer rally rolls on

European stocks hit new highs on Friday and were on course for a record-breaking run, capping another strong week as investors seize on a dip in US inflation and more forecast-beating corporate earnings.

It was a different story in Asia, where worries about a regulatory crackdown in China and a surge in the COVID-19 Delta variant has sapped confidence.

US inflation numbers this week suggested rising price growth may be peaking, which would ease pressure on the Federal Reserve to begin tapering its asset purchases.

“We see the (inflation) data as consistent with the Federal Reserve’s view that price pressures will start to fade and do not justify an early withdrawal of monetary stimulus. The market appears to share this view,” said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, pointing to record closes for the S&P 500 and falling US Treasury yields.

Pandemic-era stimulus has been behind much of the surge in stock prices the past year, but a stronger than expected economic rebound across the world and massive corporate earnings have given the rally new legs in recent weeks.

By 1130 GMT on Friday, the MSCI world equity index (.MIWD00000PUS), which tracks shares in 50 countries, was just below an all-time record high.

The broader Euro STOXX 600 (.STOXX) was 0.15 per cent higher - on Thursday it equalled its longest ever longest winning streak. Friday would see the index extending gains for a record tenth consecutive session.

Markets in Germany (.GDAXI) and France (.FCHI) added 0.37 per cent and 0.32 per cent respectively. Britain’s FTSE 100 (.FTSE) gained 0.38 per cent.

Futures also pointed to a small gain on Wall Street when it opens after markets closed at record highs on Thursday.

Not everyone is convinced the rally can continue, however.

“We feel a bit more cautious headed into autumn because of uncertainty on the health front, the Chinese regulatory front and the monetary policy front,” said Paul O’Connor, head of multi-asset at Janus Henderson.

He said he was not “bearish by any means” but had dialled back exposure to riskier assets.

“The perception is we have passed the high point in terms of central bank generosity that has suppressed yields. We should expect higher nominal and real yields from here which should start to chip away at the highest valued parts of the markets -US and tech,” he added.

Investors will also be watching consumer sentiment inflation expectations numbers due in the US at 1400 GMT.

In Asia, markets mostly declined.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.56 per cent , and was 0.8 per cent lower for the week.

Chinese blue chips (.CSI300) weakened 0.55 per cent , dragged down by its local semiconductor sub-index (.CSIH30184), which slumped 4.1 per cent .