Stocks surged globally on Friday in their best day in five months as strong US corporate earnings reports fuelled optimism about the economy, though three-year-high oil prices kept inflation risks alive and lifted government bond yields.

US investment bank Goldman Sachs Group was the latest on Wall Street to trounce market expectations when it reported a 66 per cent surge in third-quarter profit, thanks to a record wave of investment banking activity.

Rallying prices in the US and Europe

Though some analysts warned investors against complacency so early in the earnings season, especially given current constraints in the supply chain, US stocks joined Friday’s rally in global equities.

The Dow Jones Industrial Average jumped 1.1 per cent in its best weekly performance since June 25. The S&P 500 climbed 0.75 per cent to notch its best week in 2-1/2 months, and the Nasdaq Composite added 0.5 per cent.

The pan-European STOXX 600 index rose 0.74 per cent and MSCI’s gauge of stocks across the globe gained 0.86 per cent, the biggest daily rise since May 14.

“We are clearly off to a good start of the third-quarter earnings season, but have miles to go before we sleep,” said Arthur Hogan, Chief Market Strategist at National Securities Corp. Hogan noted that only 35 of the S&P 500 companies have reported their earnings.

Unperturbed by news of a fatal stabbing of a British lawmaker on Friday, Britain’s FTSE 100 climbed 0.37 per cent to hit a near 20-month high. The UK blue-chip index has now recovered all ground lost since the coronavirus pandemic began in March last year.

Concerns that soaring oil prices could drag on businesses and the economy also took a back-seat for now.

Oil prices rise

Forecasts of an oil supply deficit over the next few months as demand rises on the back of relaxed travel restrictions drove oil prices to a three-year high of above $85 a barrel.

US crude recently jumped 1.13 per cent to $82.23 per barrel and Brent added 0.83 per cent to $84.70, after hitting a high of $85.10.

Bets that rising prices are likely to prompt central banks to raise interest rates sooner than expected lifted government bond yields, though gains were more pronounced in the United States than in Europe.

The yield on two-year US Treasuries, which reflect short-term rate expectations, zoomed up to a near 19-month-high 0.3949 per cent, from Thursday’s 0.354 per cent. Benchmark 10-year Treasury yield also rose to 1.5738 per cent, from Thursday’s 1.519 per cent.

In Europe, 10-year Bund yields slipped after registering seven straight weeks of gains on signs of rising inflationary pressure and robust economic growth.

Global currencies

The dollar, bolstered by bets that quickening inflation could prompt the Federal Reserve to raise interest rates sooner than expected, touched a three-year high against the yen, which is usually sensitive to rate differentials. One dollar bought as much as 114.46 yen, the most since October 2018.

The dollar index, which measures the green-back against a basket of other currencies, was lower on the day, however, slipping 0.104 per cent, and set for its first weekly decline versus major peers since the start of last month, having lost a little ground to sterling and the euro.

Gold prices took a breather on Friday after having their best day in seven months the previous day. Spot gold dropped 1.6 per cent to $1,766.82 an ounce, and US gold futures fell 1.67 per cent to $1,766.70 an ounce.

China sees slow growth

The return of optimism will be tested by next week’s anticipated weaker growth data from China, and the impact of strengthening oil prices on consumers going into the winter months, said Mike Hewson, chief markets analyst at CMC Markets.

Indeed, China’s energy crisis deepened on Friday with coal prices hitting a record high.

A Chinese central bank official said on Friday that the spillover effect of China Evergrande Group’s debt problems on the banking system is controllable, in rare official remarks on the liquidity crisis at China’s No. 2 developer that has roiled markets.

Asia markets

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.35 per cent, rising 2.1 per cent for the week in its best weekly performance since late June, while Japan’s Nikkei surged 1.81 per cent, led by tech stocks.

Chinese shares rose more cautiously than elsewhere with blue chips up 0.38 per cent ahead of next week’s growth figures.

Analysts largely attributed the gains in Asia to the US rally.

European car registrations slumped by more than a quarter in September, and Toyota Motor said it would cut global output in November as chip shortages and supply chain problems continued to dog the sector.

Bitcoin hit a six-month high of $61,895.05 on Friday, approaching the record hit in April, as traders became increasingly confident US regulators would approve the launch of an exchange-traded fund based on its futures contracts.