European stocks rise despite US and New Zealand hints of tapering

European equities moved higher on Wednesday, shrugging off comments from US and New Zealand central bankers that the crisis-era monetary stimulus that has boosted asset prices throughout the pandemic would eventually have to be rolled back.

The regional Stoxx 600 index added 0.3 per cent in early dealings, hovering around its all-time high, while London’s FTSE 100 was flat.

“We are talking about talking about tapering,” San Francisco Fed president Mary Daly told CNBC on Tuesday evening, referring to the US central bank’s programme of $120bn of monthly asset purchases introduced last March to push down borrowing costs and prevent an economic depression.

Daly stressed that “it’s not about doing anything now”, however, with the US still 8m jobs short of where it was before the pandemic.

Her comments followed a statement by Fed vice-chair Richard Clarida earlier on Tuesday that amplified the recent shift in tone by the world’s most powerful rate-setters.

“It may well be in the upcoming meetings, we’ll be at the point where we can begin to discuss scaling back the pace of asset purchases,” Clarida said.

Investors in Europe were confident about the region’s own rate-setters moving more slowly than the Fed, said Tancredi Cordero, chief executive of asset management advisory Kuros Associates.

“The US is more advanced in its economic recovery than Europe due to the slower pace of vaccination programmes in the eurozone,” he said. “Traditionally, the ECB is also slower than the Fed to change its policies and moves later.”

In an interview with Nikkei, published on Wednesday, European Central Bank board member Fabio Panetta said the recovery in the eurozone remained too frail for rate-setters to discuss scaling back the region’s own €1.85tn monetary support package.

But New Zealand’s central bank signalled on Wednesday that it could raise interest rates from their record low level by the second half of next year.

The New Zealand dollar jumped 1.2 per cent against its US counterpart to purchase 73 US cents. The yield on New Zealand’s 10-year government bond, which moves inversely to the price of the debt, rose 0.08 percentage points to 1.905 per cent.

The moves came ahead of US inflation data on Friday that may pressure the Fed to rethink its relaxed attitude to price rises as it focuses on a labour market recovery.

Core personal consumption expenditure, the central bank’s favoured inflation measure which excludes volatile food and energy prices, is expected to have risen 2.9 per cent in April from the same month last year. Headline consumer price inflation in the US hit 4.2 per cent in the 12 months to April, the biggest jump in 13 years and more than double the Fed’s target of 2 per cent over time.

US government bonds were steady on Wednesday, however, as investors took note of repeated comments by Fed officials that price rises as the economy emerges from the pandemic would be temporary. The yield on the 10-year Treasury bond was flat at 1.565 per cent, close to a one-month low.

The dollar index, which measures the greenback against leading currencies, rose 0.1 per cent but remained around its lowest level of this year. The euro dipped 0.1 per cent against the dollar to $1.2240. Sterling also drifted 0.1 per cent lower to $1.4138.

Asian markets were mostly subdued. Tokyo’s Topix ended the session flat as did China’s CSI 300. Brent crude futures rose 0.4 per cent to $68.91 a barrel.

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