European stocks have remained stable around their all-time highs ahead of the US central bank’s monthly policy meeting, which will give investors a glimpse of how officials view the outlook for inflation over the next few months.
The regional Stoxx 600 index and the UK FTSE 100 were flat after posting small gains in early trades on Wednesday.
“The general feeling is that it’s probably too good to be true,” said Luca Paolini, chief strategist at Pictet Asset Management. “But as long as the global economy continues to do well, the market will continue to rise.”
Major players in the UK included banks such as NatWest and Barclays, beverage company Diageo and luxury retailer Burberry as they benefited from the reopening of the economy after the lockdown.
British inflation in May rose 2.1% year-on-year, figures released Wednesday, reflecting rising costs for clothing and restaurants and exceeding the Bank of England’s target. Last month, the BoE said it would slow the pace of its bond buying program during the pandemic, although it said that did not represent a change in its policy.
Paolini said the UK inflation outlook would be affected by labor shortages in many sectors, noting that there was already clear upward pressure on wages.
Central banks around the world are wondering how to react to rising inflation, although policymakers in Europe and the United States have said they see current price hikes as transient effects of economic reopening.
“It’s not a local phenomenon,” said William Sels, investment director for private banking and wealth management at HSBC. “All over the world we are seeing rising inflation due to the base effects of oil prices [in] compared to low oil prices last year, some supply chain bottlenecks and a pickup in retail and hospitality demand. “
In the United States, investors expect the Fed’s discussion of when to start cutting its monthly asset purchase program could begin as early as Wednesday. The European Central Bank said last week it would stick to its bond buying plan.
“Key thing to watch for at Wednesday’s press conference is recognition from Fed chairman [Jay] Powell that the discussion on the reduction is underway, ”said Danielle DiMartino Booth, CEO of Quill Intelligence,“ and that officials consider a timeline as to when they will communicate to markets that the tapered train is due to leave the station.
In the US, index futures indicated markets would open flat at the New York bell as investors waited for signals from the Fed. Futures following the S&P 500 were flat, while those following the tech-rich Nasdaq were up 0.1%.
Bonds have remained stable after last week’s global rally, despite the stronger inflation outlook which generally makes their fixed interest payments less attractive. The 10-year US Treasury yields, which move in the opposite direction of price, held steady at 1.492 percent. German 10-year Bund yields fell 0.01 percentage point to minus 0.241 percent.
Oil prices have continued to rise as demand picks up thanks to the lifting of pandemic restrictions by economies. Brent crude, the global benchmark, rose 0.3% to over $ 74 a barrel, its highest level since April 2019. The US benchmark, West Texas Intermediate, rose 0.2% to $ 72.30 per barrel, the highest since October. 2018.