European stocks and government bonds falter after big Wall Street rally

European stocks faltered, while government bond markets were flat, with investors holding back from making solid bets ahead of US inflation data and a key Treasury auction later on Wednesday.

As the United States House of Representatives prepare to adopt President Joe Biden’s $ 1.9 billion economic stimulus package, which raised inflation expectations and pressured global central banks to recalibrate their ultra-loose monetary policy, the Stoxx 600 European rose by 0.1%.

The UK FTSE 100 fell 0.2% and the German Xetra Dax gained 0.3%. The yield on 10-year US Treasuries, which fell about 0.9 percent in early February, was flat at 1.55 percent.

Economists polled by Bloomberg expect data to show U.S. consumer prices rose 1.7% in February from the same month in 2020, down from 1.4% the month before. Price growth is expected to continue to climb in March and April, in part due to a sharp rebound after the pandemic sharply reduced inflation a year ago.

“This will be the most watched data point of the week,” said Mimi Rushton, co-director of global currency sales at Barclays.

“The big moment of inflation is still unlikely to happen today. It’s coming in the coming months, ”said Savvas Savouri, chief economist and partner at UK hedge fund Toscafund.

“Nevertheless, this will focus minds on the fact that there is going to be a big inflationary shock because too much money drives out too few goods and services,” he added.

Investors were also preparing for a Treasury Department Auction Wednesday of $ 38 billion in 10-year bonds, followed by a sale of $ 24 billion in 30-year bonds on Thursday. Some analysts have expressed concern about the lack of demand for incoming supply in the world’s largest government bond market.

In addition to concerns about global inflation, Chinese factory exit prices have risen at the fastest pace since February 2018, data released earlier Wednesday showed, rising 1.7% year-on-year. the other.

Chinese stock markets, however, closed slightly higher on Wednesday, following reports that state-backed funds stepped in to avoid falls caused by fears the central bank could tighten monetary policy in response. to the country’s economic recovery.

China’s CSI 300 index of stocks listed in Shanghai and Shenzhen rose 0.7%, rebounding from a drop of around 2% the day before, which deepened it “correction” territory. Hong Kong’s Hang Seng Index closed 0.5% higher.

Futures have tipped US stocks over the water when Wall Street opens later today. Contracts betting on the future direction of the S&P 500 rose 0.1%, while those of the top 100 tech-focused Nasdaq stocks traded flat.

This follows a recovery of relief in the United States on Tuesday, as investors grabbed tech stocks that had been hit by fears that rising Treasuries yields could undermine historically high valuations. The Nasdaq closed 3.7 percent in its best performance in one day since November.

In currencies, the dollar index traded flat as traders “waited to see the effect of inflation on [interest] rate expectations, ”according to Barclays’ Rushton.

The euro was also stable against the US currency, buying $ 1.189, ahead of a European Central Bank meeting on Thursday where investors will look for signals on how policymakers plan to answer on the rise in bond yields.

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