European stock markets closed firmer in cautious trade yesterday after both strong growth and inflation in China cut both ways among investors nervous at the prospect of higher interest rates.
Dealers said stronger-than-expected Chinese first quarter growth was positive overall, promising sustained demand for the miners, but the spike in inflation pointed to higher interest rates as Beijing clamps down on prices.
Higher inflation figures in the eurozone and in India added to the mix, prompting investors to push gold to fresh record highs as they put their money in the traditional safe haven.
The euro slipped meanwhile as a Moody’s downgrade for Ireland and a new Greek austerity plan stoked concerns that the eurozone debt crisis remains far from resolved, with Portugal’s debt rescue package still to be negotiated.
In London, the FTSE 100 index of leading shares closed up 0.54 per cent to 5,996.01 points. In Paris, the CAC 40 edged up 0.10 per cent to 3,974.48 points and in Frankfurt the DAX added 0.44 per cent at 7,178.29 points.
Gold closed at $1,476.75 an ounce, up from Thursday’s finish at $1,465.75 but off a record high of $1,486.07.
The euro was at $1.4442 in late London trade, down from $1.4488 in New York late Thursday while the dollar fell to 83.11 yen from 83.47 yen.
Dealers said the pick up in global inflation is becoming increasingly clear, complicating the outlook as many countries such as Britain still need cheap credit to get their struggling economies back on track.
The trade off between growth and inflation is getting tighter, they said.
“While core inflation still looks benign for now, pressures are slowly building,” said Teunis Brosens of ING. “The focus of markets... is slowly but surely moving from deflation to inflation risks.”
The European Central Bank hiked interest rates last week for the first time in nearly three years although it signalled at the time that this did not necessarily mean that more were to follow immediately.
With March eurozone inflation at 2.7 per cent way above the 2.0 per cent ECB target, the ECB “seems highly likely to follow up its initial interest rate hike... with another move before long,” said Howard Archer, economist at research group IHS Global Insight.
“It seems investors are still more concerned about the threat of debt-default by peripheral EU nations and rising inflation indicators following higher-than-forecast inflation readings from India and China,” said James Moore, analyst at research group Fast Markets.
China’s consumer price index rose 5.4 per cent year-on-year in March – the fastest pace since July 2008 and well above the government’s 2011 target of four per cent – and five per cent in the first quarter.
“Economic data from China had a mixed reception... as robust Chinese growth was offset by climbing inflation concerns,” said IG Index trader Ben Critchley.
In New York, stocks were slightly firmer but tech stocks were weighed down by disappointing Google earnings.