European equities opened the week higher, following a late-stage rally on Wall Street on Friday, as investors’ uncertainty about how the end of central banks’ pandemic-era stimulus programmes will affect markets continued to drive choppy trading.
The regional Stoxx 600 index, which has lost almost 5 per cent of its value so far this year in a move echoing declines on Wall Street, opened 0.7 per cent higher. Most Asian bourses trended lower.
European banks, which are seen to benefit from higher interest rates and have been one of the few bright spots in the current bear market, rose 0.7 per cent. The Stoxx technology sub-index rose 1 per cent.
London’s FTSE 100, which has high concentrations of banking and energy stocks, added 0.5 per cent.
The moves followed unexpectedly strong US jobs data on Friday and came ahead of US inflation data later in the week that are expected to show consumer prices rose 7.3 per cent in the year to January, a fresh four-decade high.
The economic rebound from coronavirus, accompanied by surging inflation, is expected to prompt central banks to withdraw their asset purchasing programmes, implemented during the market tumult of early 2020, and raise interest rates from historic lows.
Equities have posted large intraday swings this month, with highly-valued technology stocks posting unusual single-day gains and losses, as stock market liquidity has thinned and traders struggle to transact large batches of shares.
“A record amount of stimulus is about to be withdrawn from the global economy,” said Morgan Stanley strategist Andrew Sheets, noting that the bank’s economists expect major central banks to shrink their balance sheets by $2tn in the 12 months from May this year.
“For investors, the scale of what lies ahead means we think they should keep overall exposure light.”
Markets last week priced in more than five quarter-point rate rises by the US Federal Reserve this year and a faster move towards monetary tightening by the European Central Bank than its officials anticipated at the end of last year.
Government bond markets, under pressure as predictions of higher interest rates and sustained inflation lowered the appeal of fixed income-paying securities, have sold off in response.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price, climbed 0.1 percentage points to 1.92 per cent on Friday. On Monday this move moderated slightly, with the yield declining 0.02 percentage points to 1.91 per cent.
Brent crude, the global oil benchmark, slipped 0.6 per cent to $92.71 a barrel but remained around its highest price since 2014.
In Asia, China’s CSI 300 share index gained 1.5 per cent after reopening from the long lunar new year holiday. Hong Kong’s Hang Seng index drifted 0.2 per cent lower and Japan’s Nikkei 225 lost 0.7 per cent.