European stocks and Wall Street stock futures rose on Tuesday after a bout of global market volatility in the previous session fueled by expectations that the US Federal Reserve would raise interest rates.
The Stoxx 600 regional stock index, which like other global stock markets is influenced by US monetary policy underpinning corporate borrowing costs and equity valuations around the world, rose 1 percent during London morning. .
The European stock indicator had fallen 1.5 percent on Monday in its worst daily performance since November, during a session in which the Nasdaq Composite focused on Wall Street technology briefly fell into correction territory while traders were fleeing highly valued tech stocks. Later, the index closed the New York session up just under 0.1 percent, and the Stoxx tech subindex echoed this turn on Tuesday morning, gaining 2.3 percent.
London’s FTSE 100 added 0.6 percent, while futures contracts that bet in the direction of Wall Street’s S&P 500 index added 0.4 percent. Those tracking the US tech-focused Nasdaq 100 stock index added 0.5 percent.
Following strong US labor data last week, and ahead of Wednesday’s inflation figures that economists polled by Reuters expect to show US consumer prices rose 7 percent on the year. Through December, markets have priced in the Fed’s first rate hike in the pandemic era. by March. Goldman Sachs, the investment bank, expects four rate hikes in the United States this year.
“It’s all about the Federal Reserve now and nothing else really matters,” said Hani Redha, a portfolio manager at PineBridge Investments.
The U.S. central bank, which began buying about $ 120 billion in Treasuries and mortgage-backed securities a month in March 2020 to suppress borrowing costs and insulate markets from the shocks of the coronavirus, you have already reduced your purchases and are getting ready to shrink its balance of 9 trillion dollars.
Quantitative easing, Redha said, “had pushed investors beyond the risk curve,” by raising prices and lowering bond income yields, “so you go to equities and then to the more serious areas. speculative like unprofitable tech companies. ”
“Now all that is reversed as they reduce the balance and drain excess liquidity from the system.”
But Anatole Kaletsky, an analyst at research house Gavekal, argued that it made sense to “buy the dip” after the Nasdaq correction. “Inflation is peaking and, in any case, it is not as bad as it seems,” he said. “The year-on-year inflation rates that everyone panics about are misleading because they include large payoffs for collapsing prices in the first year of the pandemic.”
“Governments and central banks have obvious incentives to keep borrowing costs low,” he added, given the high levels of government and corporate debt that accumulated during the era of ultra-low interest rates.
The yield on the benchmark 10-year US Treasury note fell 0.03 percentage points to around 1.76 percent, after trading above 1.8 percent on Monday. Government bond prices tend to fall in response to expectations of higher interest rates and inflation, reducing real returns on fixed-income payment securities. The yield on Germany’s 10-year Bund was virtually flat at minus 0.04 percent.
In Asia, Hong Kong’s Hang Seng stock index closed unchanged and Tokyo’s Nikkei 225 fell 0.9 percent. Brent crude, the energy benchmark, rose 1.5 percent to $ 82.05 a barrel.