Sat. Jan 22nd, 2022

European equities rose on Tuesday following a spate of global market volatility in the previous session, driven by expectations that the US Federal Reserve will raise interest rates in response to inflationary pressures.

The local Stoxx 600 stock index, which like other global stock markets is affected by US monetary policy that supports corporate borrowing costs and stock valuations worldwide, opened 1 percent higher.

The European stock meter fell 1.5 percent on Monday in its worst daily performance since November, during a session when Wall Street’s technology-focused Nasdaq Composite briefly in correction area as traders fled richly valued technology stocks. The index later closed the New York session with just under 0.1 percent, with the Stoxx technology sub-index echoing this reversal on Tuesday morning and rising 2.2 percent.

London’s FTSE 100 added 0.6 per cent, while futures contracts betting on Wall Street’s S&P 500 index were flat.

Following strong U.S. jobs last week, and ahead of inflation figures Wednesday that economists polled by Reuters are expected to show that U.S. consumer prices rose 7 percent in the year to December, markets saw the Fed’s first rate hike of the pandemic. era priced by March. Goldman Sachs, the investment bank, expects four US rate hikes this year.

“It’s all about the Fed now and nothing else really matters,” said Hani Redha, portfolio manager at PineBridge Investments.

The US Federal Reserve, which in March 2020 began buying about $ 120 billion worth of treasuries and mortgage-backed securities a month to suppress borrowing costs and isolate markets from the shocks of coronavirus, has already reduced its purchases and is prepare to shrink his $ 9tn balance sheet.

Quantitative easing, Redha said, “has led investors further on the risk curve,” by raising prices and reducing income returns on bonds, “so you go to stocks and then you go to the more speculative areas like unprofitable technology companies “.

“Now everything is going upside down as they shrink the balance sheet and drain excess liquidity out of 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 is not as bad as it seems anyway,” he said. “The year-on-year inflation rates that everyone is panicking about are misleading because they include large repayments for the collapse of prices in the first year of the pandemic.

“Governments and central banks have obvious incentives to keep borrowing costs low,” he added, due to high levels of government and corporate debt that had built up during the era of ultra-low interest rates.

The yield on the benchmark for 10-year U.S. Treasury notes fell 0.02 percentage points lower to 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, which lowers the real returns of fixed-income paying securities. Germany’s 10-year Bund yield was steady at minus 0.03 percent.

In Asia, Hong Kong’s Hang Seng stock index fell 0.1 percent lower and Tokyo’s Nikkei 225 fell 0.9 percent. Brent crude, the energy benchmark, added 0.8 percent to $ 81.53 a barrel.

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