European equities are rising; US yields ease after reduction talks retreat

LONDON (Reuters) – European stocks rose after a shaky start and the dollar edged higher on Wednesday, as the 10-year US Treasury yield fell from 10-month highs, helped by policy makers pushing back discussions that the Fed is reducing support.

After Asian stocks posted modest gains, European stocks opened lower then edged higher, with the pan-European STOXX 600 rising 0.2% on the day at 0918 GMT.

The MSCI World Stock Index, which tracks stocks from 49 countries, rose 0.2%, returning to all-time highs, and MSCI’s main European index rose by a similar amount.

China recorded its biggest daily increase in COVID-19 cases in more than five months, despite the lockdown of four cities, and the Dutch government said it would extend the lockdown measures on Tuesday.

Investors are closely following the discussion of tapering – that is, the possible Fed easing of monetary stimulus.

Several Federal Reserve policymakers, including Loretta Mester, Esther George, James Bullard, and Eric Rosengren, have pushed back against the idea that the Fed will cut back on asset purchases anytime soon.

Those comments, along with a well-received auction of 10-year Treasuries, pushed the US 10-year yield back, far from the 10-month high of 1.187% reached in the previous session.

At 9:19 a.m. GMT, the benchmark yield was 1.1189%.

The yield curve, which had reached the highest level since May 2017 amid expectations of a strong fiscal stimulus under a new Democratic administration, narrowed slightly to 96.8 basis points.

“We believe the potential for fiscal stimulus, as well as a normalization of economic activity as vaccine deployment accelerates, justifies slightly higher returns from the US Treasury,” UBS strategists wrote in a statement. note to customers.

“To recognize this, we have raised our 10-year and 30-year Treasury yield guidance by 0.1 percentage point this year to 1.0% and 1.7%, respectively, by the end of December,” they said, adding that they didn’t expect yields to accelerate to go much further than that because central banks remain dovish and the Fed has signaled a tolerance for higher inflation.

In light of the recent surge in yields, US inflation data for December at 1:30 p.m. GMT will be closely watched.

The US dollar recently broke its downtrend with a three-day winning streak, then resumed its fall on Tuesday. He was stable overnight, but resumed early in London’s Wednesday session, questioning the end of his rebound.

As of 9:20 a.m. GMT, it was up 0.1% to 90.136 against a basket of currencies.

With at least five Republicans joining Democrats in impeaching President Donald Trump following the storming of the U.S. Capitol, Marshall Gittler, head of investment research at BDSwiss Group, has said preventing Trump from running for office. elections in the future “would permanently remove the ‘Trump prime’ from the dollar and allow the currency to weaken further.”

In Europe, government bond yields have fallen. Italian bonds, which sold on Tuesday due to political uncertainty, were lagging behind Germany.

Eurozone industrial production data for November is due at 10:00 GMT.

Against the dollar, the euro was down about 0.2% to $ 1.21875 at 9:20 a.m. GMT. Riskier currencies such as the Australian and New Zealand dollars also fell, as the US dollar rose slightly.

Bitcoin edged up slightly, but at $ 34,999 it was still around 17% down from the all-time high of $ 42,000 reached on Friday last week.

Oil prices rebounded, gaining for the seventh day in a row, with US West Texas Intermediate and Brent both trading at their highest level since February, after industry data showed a larger drop in inventories than expected and that investors ignored the impact of the pandemic.