LONDON, Oct 15 Reuters - Shares rose on Friday, buoyed by stellar earnings results, but weak oil prices and stalling car sales in Europe were a reminder of headwinds for the global economy.
The STOXX index of 600 European shares was up 0.2% at three week highs. The FTSE 100 gained 1.2% also, the UK blue-chip index had lost all ground since the coronavirus pandemic began in March last year, having recovered all lost ground since then.
There is an element of complacency. Markets have been trying to make up their mind on whether inflation is transitory, are supply chain disruptions going to translate into higher costs, said Mike Hewson, chief market analyst at CMC Markets.
But this week's earnings from various companies are assuaging some of these concerns that companies won't be able to pass some of these cost increases to consumers and that's why we are seeing an increase in risk, Hewson said.
Strong earnings from top US banks on Thursday - with more of the same expected to deliver Goldman Sachs later on Friday - helped the S&P 500 Index on Wall Street notch up its largest daily percentage increase since early March, and sent European lenders higher in early trading.
The return of optimism in markets will be tested by the anticipated weaker growth data from China next week and the impact of strengthening oil prices on consumers going into winter months, said Hewson.
Investors were also trying to figure out where bonds go after 10 - year Treasury yields touched 10 day lows, hoping for a steer from U.S. retail sales figures due later in the day.
With neither strong case for either direction and many investors likely to be sitting on a dismal performance as major fixed income is in the red year-to-date, yield volatility is likely to remain elevated in the coming months, UniCredit told clients in a note.
Asian shares increased on Friday, building on Wall Street's positive lead although worries about the Chinese economy limited gains.
Oil prices were at multi-year highs, a drag on growth in energy export markets in Southeast Asia, but good news for some energy-importing markets in North Asia.
U.S. crude gained 1% to $82.13 a barrel, near the Monday seven-year high of $82.18. Brent crude rose 1% to $84.88-a barrel, near its three-year high on Monday.
On Friday, Bitcoin reached a six-month high of $60,000, approaching the record in April, as traders became more confident U.S. regulators would approve the launch of an exchange traded fund based on its futures contracts.
Analysts largely attributed the gains in Asia to the U.S. rally.
U.S. shares soared overnight after data showed a fall in new claims for unemployment benefits, lower-than-expected factory gate price inflation and expected-beating results for the four largest U.S. consumer banks.
The stagflation narrative had some cold water thrown over it, said Kyle Rodda an analyst at IG markets.
Chinese shares were more cautious than elsewhere with blue chips up 0.43% ahead of next week's growth figures.
The Barclays analysts estimate that GDP growth will slow in the third quarter to 4.6% by an economist from 5.6% previously, in view of persistent weakness in consumption and services amid repeated COVID outbreaks, and the fading of the low year-earlier base.
In the currency markets, the dollar rose again to an near three year high on the yen with one dollar purchasing 114.12 yen, the most since late 2018 - the highest since December 2018.
The dollar index, which measures the greenback against a basket of currencies, was slightly lower on the day at 93.89 and set for its first weekly decline against major peers since the beginning of last month, having lost a little ground on sterling and the Euro.
The yield on benchmark 10-year-banknotes was 1.5458%, slightly higher on the day, after trending downwards this week from Monday's four-month high of 1.631%.