LONDON (Reuters) – European equities rose after an unstable start and the dollar rose on Wednesday, while the 10-year U.S. Treasury yield fell from its 10-month highs, helped by lawmakers who resisted the rumor that the Fed would be reducing its support.
After Asian stocks recorded modest gains, European stocks opened lower and then rose slightly, with the pan-European STOXX 600 rising 0.2% on the day at 0918 GMT.
The MSCI world equity index, which tracks stocks in 49 countries, rose 0.2%, returning to historic highs, and the main European index for the MSCI rose by a similar amount.
China recorded its biggest daily jump in COVID-19 cases in more than five months, despite four cities being blocked, and the Dutch government said it would extend the blocking measures on Tuesday.
Investors are closely following the discussion around the gradual reduction – that is, the possible easing of the monetary stimulus by the Fed.
Several Federal Reserve policymakers, including Loretta Mester, Esther George, James Bullard and Eric Rosengren, rejected the idea that the Fed would reduce its asset purchases soon.
These comments, along with a well-received 10-year Treasury bond auction, pushed the 10-year US yield back down, away from the 10-month high of 1.177% achieved in the previous session.
At 0919 GMT, the reference yield was 1.1189%.
The interest curve, which reached the biggest slope since May 2017 due to expectations of a major fiscal stimulus under a new Democratic government, has slightly decreased to 96.8 basis points.
“We believe that the potential for fiscal stimulus, along with the normalization of economic activity as the vaccine implantation increases, justifies slightly higher yields from the US Treasury,” UBS strategists wrote in a note to clients.
“To recognize this, we have increased our 10-year and 30-year US Treasury yield projections by 0.1 percentage points this year to 1.0% and 1.7%, respectively, at the end of December,” they said, adding who do not expect the rise in yields to go much further than that, because central banks remain accommodative and the Fed has signaled tolerance for higher inflation.
In light of the recent yield jump, the US December inflation data, forecast at 1330 GMT, will be closely watched.
The US dollar recently broke its downward trend with a three-day winning streak, and fell again on Tuesday. It was stable overnight, but recovered at the start of London talks on Wednesday, casting doubt on whether its recovery was over.
At 0920 GMT, it was up 0.1% to 90.136 against a basket of currencies.
With at least five Republicans joining Democratic pressure to impeach President Donald Trump over the US Capitol invasion, Marshall Gittler, head of investment research at the BDSwiss Group, said that preventing Trump from running for office in the future ” it would definitely remove the “Trump premium” from the dollar and allow the currency to devalue even further. “
In Europe, yields on government bonds have fallen. Italian bonds, which were sold on Tuesday due to political uncertainty, lagged behind Germany.
Eurozone industrial production data for November is due at 1000 GMT.
Against the dollar, the euro fell about 0.2%, to $ 1.21875, at 09h20 GMT. Risky currencies, such as the Australian and New Zealand dollars, also fell, as the US dollar rose.
Bitcoin rose slightly, but at $ 34,999, it was still about 17% below the historic $ 42,000 high reached on Friday last week.
Oil prices rose, winning for the seventh consecutive day, with the US West Texas Intermediate and Brent trading at their highest level since February, after industry data showed a larger than expected drop in inventories and investors ignored the impact of the pandemic.
Reporting by Elizabeth Howcroft, edited by William Maclean