European stocks and Wall Street futures rise after volatile session

European stocks and Wall Street futures rose on Tuesday after global markets jittered in the previous session on expectations of a rate hike by the US Federal Reserve.

The Stoxx 600 Stock Index in the region, like other global stock markets, is influenced by US monetary policy as the basis for corporate borrowing costs and equity valuations around the world. world, rose 1% in the morning in London.

European stock indexes fell 1.5% on Monday in their worst daily performance since November, in a session as Wall Street’s tech-focused Nasdaq Composite briefly fell into repair territory as traders flee high-value tech stocks. The index then closed the New York session up just under 0.1%, with the Stoxx tech sub-index repeating this change Tuesday morning, up 2.3%.

London’s FTSE 100 added 0.6 percent, while futures bets on Wall Street’s S&P 500 index added 0.4 percent. Followers of the tech-focused US Nasdaq 100 stock index gained 0.5%.

Following strong US jobs data last week and ahead of Wednesday’s inflation data that economists polled by Reuters expect to show US consumer prices rose 7% in the year to May. 12, markets priced in the Fed’s first rate hike of the pandemic era in March. Investment bank Goldman Sachs expects four US rate hikes this year.

“It’s all about the Fed and nothing else really matters,” said Hani Redha, portfolio manager at PineBridge Investments.

The US central bank, began buying about $120 billion in Treasuries and mortgage-backed securities each month in March 2020 to reduce borrowing costs and insulate markets from coronavirus shocks, has reduced purchases and is now prepare to shrink its $9 billion balance sheet.

Quantitative easing “has led investors further along the risk curve,” Redha said, by increasing prices and decreasing earnings yields on bonds, “so you move into equities and then you go into more speculative areas like unprofitable tech companies.”

“Now all of that will reverse as they shrink their balance sheets and drain excess liquidity out of the system.”

But Anatole Kaletsky, an analyst at research firm Gavekal, argues that it makes sense to “buy down” after the Nasdaq correction. “Inflation is peaking, and in any case is not as bad as it seems,” he said. “The annual inflation rates that people are panicking about are misleading because they include large paybacks to the price drop in the first year of the pandemic.”

“Governments and central banks have clear incentives to lower borrowing costs,” he added, given the high levels of government and corporate debt that have accumulated during periods of extremely low interest rates.

Yields on the benchmark 10-year US Treasury note fell 0.03 percentage points to about 1.76%, after trading above 1.8% on Monday. Government bond prices tend to fall due to expectations of higher interest rates and inflation, which reduces the real return on fixed-income securities. German 10-year Bund yields were generally stable at negative 0.04%.

In Asia, Hong Kong’s Hang Seng stock index closed flat and Tokyo’s Nikkei 225 fell 0.9%. Brent crude, the energy benchmark, rose 1.5% to $82.05 a barrel.

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