European stock markets continued their march higher on Wednesday after last week’s wobble, while UK shares more exposed to the domestic economy rose ahead of the Budget.
The regional Stoxx 600 benchmark added 0.7 per cent in morning trading, putting it on track for its third consecutive daily gain, while London’s FTSE 100 rose 1.2 per cent and Germany’s Xetra Dax gained almost 1 per cent.
Investors snapped up shares in domestically focused UK companies ahead of UK chancellor Rishi Sunak addressing the House of Commons later. He is expected to extend a vast package of Covid-19 support, including pay for furloughed workers until the end of September, in a plan to nurse Britain back to economic health by the autumn.
Premier Inn hotel operator Whitbread’s stock was up almost 5 per cent, housebuilder Persimmon gained more than 4 per cent and lender Barclays added nearly 4 per cent. Sterling crept 0.2 per cent higher against the dollar to $1.3982.
The mid-cap FTSE 250 index, which is more skewed towards the UK economy than the internationally focused FTSE 100, added 1.4 per cent.
Government bond prices weakened a little, pushing yields higher. The yield on the 10-year US Treasury rose 0.03 percentage points to just under 1.45 per cent on Wednesday morning, while Germany’s equivalent bond yield was 0.03 percentage points higher at minus 0.32 per cent.
Federal Reserve governor Lael Brainard said on Tuesday evening that last week’s wild ride in US government bond markets driven by bets of a strong economic recovery from coronavirus feeding inflation had “caught my eye”.
A government bond sell-off, which pushed the yields on 10-year Treasury bonds from just above 0.9 per cent at the start of the year to just over 1.6 per cent last week, has disturbed stock markets by changing the so-called risk-free rate that underpins a wide range of assets.
The drama in the Treasury market partly reflects bets by some traders that the Fed will be pushed into tightening monetary policy. Brainard said in comments reported by Bloomberg that it would take “some time” for the central bank to wind down its $120bn-plus of monthly asset purchases it has carried out since last March.
“Everything is pivoting on interest rates at the moment,” said Tancredi Cordero, chief executive of investment strategy boutique Kuros Associates.
After a series of record highs for global equities as recently as last month, equities were “priced for perfection” and “very sensitive” to interest rate expectations that determine how investors value companies’ future cash flows, Cordero added.
Volatility in bond and stock markets, he said, would probably continue at least until the US Senate voted on President Joe Biden’s $1.9tn economic stimulus package in coming days.
UK government bonds also remained out of favour on Wednesday, with the yield on the 10-year gilt adding 0.04 percentage points to 0.73 per cent.
Elsewhere, Brent crude oil prices gained 1.6 per cent to more than $63 a barrel.
Asia’s stock markets also made advances, with China’s CSI 300 index rising 1.9 per cent and South Korea’s Kospi 200 adding 1.3 per cent.