European equities rose on Wednesday, after Hong Kong technology stocks experienced their best day since October, as traders responded to comments from US Federal Reserve Chairman Jay Powell that the central bank would take action to control high inflation.
The local Stoxx 600 index rose 0.4 percent, London’s FTSE 100 added 0.5 percent and futures markets tipped the US S&P 500 index to 0.1 percent higher in early New York transactions. The S&P closed 0.9 percent higher on Tuesday, while the tech-heavy Nasdaq Composite added 1.4 percent.
Hong Kong’s Hang Seng stock index rose 2.7 percent, boosted by technology stocks whose high valuations made them the most sensitive to the rise in bond yields earlier in January. The Hang Seng Tech Index added nearly 5 percent, its biggest daily rise in more than three months.
Tokyo’s Nikkei 225 rose 1.9 percent.
Inflation data released later on Wednesday is expected to show that U.S. consumer prices rose 7 percent in December from the same time last year, at the fastest pace of increases since 1982, driven higher by stimulus spending and pandemic-related supply chain bottlenecks.
In testimony to the Senate Banking Committee on Tuesday, Powell said the central bank would take action to prevent this situation from being “entrenched”, in a remark that disrupt a recent rise in bond yields that has put selling pressure on stocks.
Expectations of rising inflation have pushed down the prices of fixed-income securities such as US Treasuries, which have boosted their revenue yields and in turn reduction which investors will pay for every dollar of a company’s future earnings.
“We believe the mortgage sale can be done largely for the time being,” Barclays strategists led by Emmanuel Cau wrote in a note to clients.
“We think it will help restore shares.”
Yields on the benchmark for 10-year U.S. Treasury notes rose above 1.8 percent on Monday from about 1.53 percent at the beginning of the year, fueling sharp stock market fluctuations and Wall Street’s technology-heavy Nasdaq Composite stock index push up. briefly in a correction. By Wednesday morning in London, the 10-year yield had dropped to 1,748 per cent.
Analysts also expect that the Fed, which has tied interest rates close to zero since March 2020 and bought large amounts of bonds to set borrowing costs, will soon remove much of this emergency support.
“The Fed chairman’s words seemed to confirm market expectations for interest rate hikes to begin as soon as March,” said strategists at TD Securities.
But some investors say US and European stock markets can withstand higher borrowing costs as long as economic strength increases companies’ earnings and inflation peaks.
“If bond yields rise and earnings fall, equities will struggle this year,” said Luca Paolini, chief strategist at Pictet Asset Management. “But the fourth-quarter earnings season could also provide a catalyst for the next bounce.”
The dollar index, which measures the US currency against six others, was stable. Brent crude, the oil benchmark, was flat at $ 83.77 a barrel.