European stocks opened higher on Wednesday, with all sectors rising, as declines in the region’s government bond prices calmed.
The Stoxx 600 gauge added 1 per cent in early trading, though it remained down almost 4 per cent for the year to date. Technology stocks gained 1.4 per cent, with consumer cyclicals and utilities shares also rising more than 1 per cent. London’s FTSE 100 rose 0.5 per cent and Germany’s Xetra Dax added 0.2 per cent.
The yield on Germany’s benchmark 10-year Bund, which moves inversely to its price and sets borrowing costs across the currency bloc, declined 0.03 percentage points to 0.23 per cent. The critical debt yield climbed above zero last month for the first time since May 2019.
Eurozone bonds have been volatile since Thursday, when Christine Lagarde, European Central Bank president, said officials were concerned about record levels of inflation in the bloc.
According to strategists at Morgan Stanley, however, analysts’ forecasts for European company profits this year have become overly pessimistic because the eurozone economy was recovering from the coronavirus-induced shocks of the past two years.
“Consensus estimates remain very subdued,” the Morgan Stanley team led by Graham Secker wrote in a note, pointing out that the expectations of 6 per cent aggregate earnings growth were “lower than our own economists’ GDP [expectations]”.
“We do not think a more hawkish ECB policy path derails the case for EU stocks,” the analysts said.
US Treasuries also traded more calmly on Wednesday, with the yield on the 10-year note down 0.02 percentage points to 1.93 per cent, still close to its highest level since late 2019.
The Federal Reserve has signalled its willingness to raise interest rates after pulling them to historic lows in March 2020, while data out on Thursday are expected to show US consumer prices climbed to 7.3 per cent in the year to January, a four-decade high.
Wall Street’s S&P 500 share index closed 0.8 per cent higher on Tuesday as bank shares that benefit from higher interest rates rose. Futures markets suggested that the S&P would add a further 0.3 per cent at the New York opening bell. The gauge remains more than 5 per cent lower for the year.
In Asia, Hong Kong stocks gained, boosted by rising aluminium prices and a rebound for tech companies.
The Hang Seng index climbed 1.9 per cent while its tech sub-index, which often swings on regulatory pressures on Chinese internet groups, rose 3.6 per cent.
Materials companies benefited from the surging price of aluminium, which has been pushed to its highest level since the global financial crisis by tight supply, strong demand and escalating tensions in Ukraine.
In currencies, the dollar index was steady ahead of Thursday’s CPI data. The euro was flat against the dollar, buying $1.14.
Brent crude, the international oil benchmark, dipped 0.3 per cent to $90.49 a barrel, under pressure from the prospect of the US lifting sanctions against Iran.
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