European equities made small gains in morning trade on Tuesday, shrugging off stronger than expected French and Spanish inflation data which increased investors’ fears that interest rates in the eurozone may stay high to curb price rises.
The region-wide Stoxx 600 rose 0.1 per cent and Germany’s Dax was 0.2 per cent higher, recovering from early declines and taking their cue from further gains in prospect at the open on Wall Street.
Stock and bond markets were unnerved in early trade by hotter than anticipated inflation data from France and Spain, two of the eurozone’s largest economies. Consumer prices rose 7.2 per cent in the year to February, up from 7 per cent the previous month. Economists had predicted no change. In Spain inflation rose 6.2 per cent in the year to February, higher than 5.9 per cent in January and well above the fall to 5.5 per cent economists had forecast.
The readings added to investors’ concerns that the European Central Bank would need to extend its aggressive policy of raising rates for longer to tame inflation. Yields on European government bonds also rose as prices fell, with the yields on German Bunds hitting a fresh 12-year high.
Investors in the swaps market expect the ECB interest rates to peak at just below 4 per cent by the end of the year. The yield on 10-year German Bunds rose 0.07 percentage points to 2.64 per cent — its highest level since June 2011.
“The question is for how long interest rates will increase and to what level, as well as if there will be a spreading effect from the labour market,” said Mabrouk Chetouane, head of global market strategy at Natixis Investment Managers.
US futures contracts pointed to a higher open in New York, with the blue-chip S&P 500 and the tech-heavy Nasdaq Composite both rising 0.2 per cent. US indices rebounded overnight after their biggest weekly tumble in two months last week.
“Last year’s pessimism seems to have subsided despite renewed concerns about inflation, upcoming interest rate hikes and continued growing geopolitical concerns . . . At the same time, more and more interest rate hikes are being priced in,” said analysts at SEB Research.
Yields on 10-year US Treasuries rose 0.02 percentage points to 3.94 per cent, while the two-year benchmark, which is more sensitive to monetary policy, gained 0.01 percentage points, to 4.8 per cent.
The dollar index, which measures the greenback against a basket of six peer currencies, was flat while the euro rose 0.1 per cent. Sterling gained 0.2 per cent, after rising 1 per cent on Monday as the UK and EU reached a deal on post-Brexit trading rules.
Brent crude rose 1.3 per cent to $83.48 per barrel, while WTI, the US equivalent, gained 1.4 per cent to $76.75 per barrel.
Hong Kong’s Hang Seng index fell 0.8 per cent, while China’s CSI 300 rose 0.6 per cent.
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