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Europe, Asia stocks put aside US growth setback

A insurgency in Iraq has driven oil prices as high as $115 a barrel, threatening to raise costs for businesses around the world. Prices eased on Thursday but remain close to levels not seen since the start of 2013. The surge in oil prices is the latest setback for a global economy still trying to get back on its feet.

In that light, Wednesday’s final estimate of US gross domestic product in the first quarter was only the latest argument that the Federal Reserve will keep interest rates at record lows into next year.

Most investment houses are also much more optimistic about the future. Some responded to the US figures by raising their estimates of second-quarter growth.

“There’s a storm in the rear-view mirror, but much brighter sunshine ahead,” said Kit Juckes, a strategist with French bank Societe Generale in London. “The storm does matter, though. There is every reason to be optimistic about upcoming US data, and equally, every reason to expect policy to remain easy.”

European stock markets had retreated after the US figures on Wednesday, then rebounded. Shares in Barclays sank three per cent, though, after New York’s attorney general filed a lawsuit against the UK lender. Longer-dated bond yields fell and the dollar suffered as funds were forced to move out the yield curve. Investors were willing to accept just 1.26 per cent to lend to Germany for 10 years.

US crude added four cents to $106.54 a barrel, while Brent was unchanged at $114.00.

The prospect of the Fed keeping rates low for longer encouraged equity investors, though some were cautious in case a key measure of US inflation due later Thursday surprised on the high side.

The price index for personal consumption expenditures is the Fed’s favoured measure of inflation and looks likely to have reached its highest since late 2012 in May.

Most Asian markets ended in the black with MSCI’s broadest index of Asia-Pacific shares outside Japan up 1.08 per cent. Japan’s Nikkei gained 0.3 per cent and Australia 1.15 per cent.

“You can make the argument that the weaker the number for Q1, the more that Q2 is going to pay back in terms of growth,” said Alessandro Tentori, global head of rates strategy at Citi.

“This is on the assumption that Q1 has been influenced by emerging markets weakness and weather related factors.”