European equities and Wall Street stock futures rose on Wednesday, as strong corporate results outweighed concerns about central banks tightening monetary policy.
The Stoxx Europe 600 share index edged 0.3 per cent higher, after losing 1 per cent on Tuesday as financial markets were rattled by predictions the US central bank would raise interest rates four times this year.
The yield on the 10-year German Bund, a benchmark for eurozone borrowing costs, traded at 0.004 per cent on Wednesday, rising above zero for the first time in almost three years as the price of the debt security fell.
Earnings dominated the stock market narrative on both sides of the Atlantic, however, as investors banked on economic growth lifting companies’ revenues.
“We expect solid earnings to help equities shrug off [monetary] policy normalisation,” Emmanuel Cau, Barclays’ head of European equity strategy, said in a note to clients.
The Stoxx’s weighty personal and household goods sub-index added more than 2 per cent, after Cartier owner Richemont reported a 32 per cent jump in quarterly sales and UK fashion house Burberry raised its sales forecasts.
Futures markets also implied that recent tumult on Wall Street ahead of the Fed’s monthly meeting next week would moderate after Bank of America announced quarterly earnings that beat analysts’ forecasts.
Contracts that wager on the S&P 500 rose 0.2 per cent after the blue-chip index closed 1.8 per cent lower on Tuesday. Those tracking the technology-heavy Nasdaq 100, which has lost almost 7 per cent so far in January, added 0.3 per cent.
The yield on the 10-year UK gilt rose 0.05 percentage points to 1.269 per cent, around its highest in three years, as data showing inflation had hit a 30-year high also made the fixed interest security less appealing.
Italy’s equivalent bond yield added 0.02 percentage points to 1.405 per cent.
Economists expect the European Central Bank to resist a rapid reduction of its €1.85tn bond purchasing programme that has pinned down government and household borrowing costs since March 2020 and keep its cash deposit rate negative until at least next year.
But eurozone debt and equity markets are highly interconnected with the US, where the 10-year Treasury yield has climbed from about 1.51 per cent at the end of last year to 1.88 per cent as the US Federal Reserve moves towards rate rises to combat surging inflation.
“The move up in German rates is an indirect effect of what is happening in the US because these markets are connected,” said Ewout van Schaick, head of multi-asset at European fund manager NN Investment Partners.
“But I still expect [rates] moves to be bigger in the US than they are in Europe,” he said, adding that eurozone stocks might outperform Wall Street in 2022 for this reason.
Oil and gas stocks also gained after Brent crude jumped as high as $89.05 a barrel, following an explosion on Tuesday night which temporarily halted exports on a Turkish pipeline, spooking an oil market already concerned about potential supply disruptions.
In Asia, Hong Kong’s Hang Seng share index added 0.1 per cent and mainland China’s CSI 300 lost 0.7 per cent. The Nikkei 225 in Tokyo ended the session 2.8 per cent lower.
The dollar index, which measures the US currency against six others, dipped 0.1 per cent.
Additional reporting by Tom Wilson in London
