European stocks and government bonds waver after big Wall St rally


European equities wavered, while government bond markets were steady, as investors held back from making strong bets ahead of US inflation data and a key Treasury auction later on Tuesday.

As the US House of Representatives prepared to pass President Joe Biden’s $1.9tn economic stimulus package, which has heightened inflation expectations and piled pressure on global central banks to recalibrate ultra-loose monetary policy, the European Stoxx 600 benchmark traded flat.

Britain’s FTSE 100 fell 0.3 per cent and Germany’s Xetra Dax gained 0.2 per cent. The yield on the 10-year US Treasury bond, which has climbed from about 0.9 per cent at the start of February, was stable at 1.55 per cent.

Economists polled by Bloomberg expect the data to show that US consumer prices were up by 1.7 cent in February from the same month in 2020, from a 1.4 per cent rate in the previous month. Price growth is expected to climb further in March and April, partly due to a marked rebound after the pandemic sharply reduced inflation a year ago.

“It is still unlikely that the big inflation moment is today. It is coming in the months ahead,” said Savvas Savouri, chief economist and partner at UK hedge fund Toscafund.

“Still, this will focus minds on the fact there is going to be a big inflationary shock as too much money chases too few goods and services,” he added.

Line chart of Year on year change in CPI index (%) showing US consumer price growth has rebounded from pandemic lows

Investors were also steeling themselves for a US Treasury department auction on Wednesday of $38bn of 10-year notes, followed by a sale of $24bn in 30-year bonds on Thursday. Some analysts have expressed concern over a lack of demand for incoming supply in the world’s largest government bond market.

Adding to global inflation concerns, Chinese factory gate prices rose at the fastest rate since February 2018, data released earlier on Wednesday showed, advancing by an unexpectedly strong 1.7 per cent year on year.

China’s stock markets closed modestly higher on Wednesday, however, following reports that state-backed funds had intervened to prevent falls caused by concerns the central bank could tighten monetary policy in response to the nation’s economic recovery.

China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks rose 0.7 per cent, rebounding from a fall of about 2 per cent the previous day that took it deeper into “correction” territory. Hong Kong’s Hang Seng index closed 0.5 per cent higher.

Futures tipped US shares to tread water when Wall Street opens for trading later in the day. Contracts betting on the future direction of the S&P 500 fell less than 0.1 per cent while those on the top 100 stocks on the technology-focused Nasdaq dropped 0.2 per cent.

This followed a relief rally in the US on Tuesday as investors snapped up technology shares that had been hit by concerns that rising Treasury yields could undermine historically high valuations. The Nasdaq closed up 3.7 per cent in its best one-day performance since November.

In currencies, the dollar index added 0.2 per cent. The euro edged 0.1 per cent lower, to purchase $1.189, ahead of a European Central Bank meeting on Thursday where investors will look for signals of how policymakers plan to respond to rising bond yields.

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