European equities and Wall Street stock futures rose as traders shrugged off worries about impending rate increases to focus on a batch of strong tech company earnings.
The regional Stoxx 600 gained 0.7 per cent, with its technology sub-index adding 1.2 per cent. Futures markets implied the tech-heavy US Nasdaq 100 index would open 1.6 per cent higher, while contracts tracking the broader-based S&P 500 added 0.9 per cent.
The moves came after Google parent Alphabet followed Microsoft and Apple to post forecast-beating quarterly results, overshadowing investors’ jitters about a hawkish pivot by the Federal Reserve, which last month refused to rule out rapid rate rises to battle soaring inflation.
Shares in tech businesses, which were the clear winners of the pandemic era, have slid this year and dragged the Wall Street bourses they dominate down with them, as investors adjust their valuation models to account for higher borrowing costs.
But Alphabet’s US shares rose about a tenth in pre-market trading on Wednesday, Facebook owner Meta added about 4 per cent and Amazon gained 3 per cent.
“These results from higher-quality tech businesses are helping to distract attention from central banks and the normalisation of monetary policy that markets are facing in 2022,” said Aneeka Gupta, research director at ETF provider WisdomTree.
“But I don’t think this market correction is over,” she added, following Wall Street’s worst January since the depths of the global financial crisis in 2009. “This is a time when economic growth is coming off very high levels reached in 2021, inflation is going to bite into companies’ profit margins and they will struggle with high operating costs and higher interest rates.”
The IMF has significantly downgradedits 2022 growth forecasts for China and the US. Markets have also priced about five quarter-point rises in the Fed funds rate by the end of the year, from close to zero at present. One of the central bank’s officials, Atlanta Fed president Raphael Bostic, this week floated the idea of a supersized half-point increase in March.
The yield on the benchmark 10-year US Treasury note fell about 0.02 percentage points to 1.78 per cent. This benchmark yield, which moves inversely to the price of the government debt instrument and sets the tone for borrowing costs worldwide, has climbed from about 1.5 per cent late last year as prospects of sustained inflation and higher interest curbed demand for fixed-income-paying securities.
Germany’s equivalent Bund yield, which before a move higher last month had traded below zero since May 2019, was steady at 0.04 per cent as traders awaited a response from the European Central Bank to a surge in eurozone inflation to new record levels.
President Christine Lagarde, who will speak at a press conference following the bank’s monetary policy meeting on Thursday, last month resisted pressure to lift the currency bloc’s main interest rate from historic lows. Ahead of the meeting, the euro rose 0.5 per cent against the dollar to purchase just over $1.13.
The dollar index, which measures the greenback against six major currencies, fell 0.4 per cent as the stronger euro and positive mood on equity markets weakened demand for the haven asset.
Brent crude, the oil benchmark, added 1 per cent to $90.14 a barrel.
