Fri. Dec 3rd, 2021

European equities were dampened on Wednesday as investors weighed in on US monetary policy and the spread of coronavirus, causing the biggest drop for the region’s markets since September.

The local Stoxx Europe 600 stock index picked up before falling 0.1 per cent, while London’s FTSE 100m lost 0.1 per cent. France’s Cac 40 index fell 0.2 percent and Germany’s Dax fell 0.4 percent. Futures that follow Wall Street’s S&P 500 fell 0.4 percent, while those that follow the Nasdaq 100 index fell 0.5 percent.

President Joe Biden’s nomination earlier this week of Jay Powell for a second term as head of the Federal Reserve shook the U.S. government bond market, lowering the price of short-term debt. The move spilled over to the stock market, with the Stoxx 600 falling 1.3 percent on Tuesday after a slight swing on Wall Street the previous day.

Concerns about investors have largely centered on expectations that Powell could take a slightly more aggressive approach to curbing crisis-era stimulus measures than Lael Brainard, who was seen as his main rival for the job.

Inflation data, which will be released later Wednesday, could help provide further clues as to what action the Fed will take. Wall Street economists polled by Refinitiv expect the core consumer price index, the Fed’s preferred inflation meter, to rise 4.5 percent in October from the same month last year.

The consumer price index, another inflation gauge, rose at its fastest in October annual rate in three decades, according to data released earlier this month.

“We now have an environment where the market debate has turned to how high inflation can go and what will be the Fed’s response,” said Roger Lee, head of UK equities strategy at Investec. “It’s something most people in stock and fixed income markets have never worked in before.”

US and European government debt markets were largely stable ahead of the PCE release scheduled for 08:30 New York time (13:30 London time). The U.S. 10-year treasury note yield is slightly lower at 1.65 percent, with the German equivalent flat at minus 0.23 percent.

Elsewhere, New Zealand’s central bank Wednesday increase interest rates by 0.25 percentage points to 0.75 percent, in a move designed to cool the economy and curb rising house prices.

After its second rate hike in two months, the New Zealand Reserve Bank also issued false guidance on future moves, saying interest rates are likely to rise above their neutral level.

In Asia, Hong Kong’s Hang Seng index was up 0.1 percent and Shanghai’s CSI 300 index was flat.

Oil prices fell after an earlier surge, with Brent crude oil up 0.24 percent to $ 82.11 a barrel, even as President Biden on Tuesday authorized the release of 50 million barrels of oil – about 2.5 days of US oil consumption – in an effort to lower gasoline prices for consumers.

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