European equities rose on Wednesday, as investors weighed up the worsening coronavirus situation on the continent with a pledge for large-scale economic stimulus from the incoming US administration.
The regional benchmark Stoxx 600 and Germany’s Xetra Dax gained about 0.5 per cent in early dealings, while the UK’s FTSE 100 edged 0.2 per cent higher.
This followed an advance for US markets on Tuesday, after Treasury secretary nominee Janet Yellen endorsed president-elect Joe Biden’s $1.9tn package to address the economic damage wrought by Covid-19. Mr Biden will be sworn in as the country’s 46th president later on Wednesday.
“The US stimulus will increase global demand, which will benefit European companies,” said Francesco Sandrini, a multi-asset fund manager at Amundi.
“But we think European equities are set for a pause,” he added, as investors assess the “further economic hits from lockdowns” against the pace of vaccination programmes that has so far been sluggish in some countries.
German chancellor Angela Merkel and state leaders agreed on Tuesday to extend the nation’s lockdown until mid-February. This came hours after the UK recorded its largest daily increase in deaths from coronavirus, with 1,610 people dying within 28 days of a positive test.
Meanwhile, the US dollar, as measured against a basket of currencies, eased from a four-week high hit earlier in the week, slipping 0.1 per cent. The euro traded flat against the dollar at $1.21, while sterling rose 0.3 per cent to purchase just under $1.37.
Gold, commonly used as a hedge against inflation, gained 0.9 per cent to $1.854 an ounce after Ms Yellen’s pledge on Tuesday to “act big” on stimulus spending fuelled bets on price rises in the world’s largest economy.
The break-even rate, a measure of US inflation expectations derived from the price of inflation-protected debt instruments, is running above 2 per cent after a steady rise since last summer.
US government bonds, seen as a haven asset but one which has sold off in recent weeks as inflation expectations have risen, held steady ahead of Mr Biden’s inauguration, yielding just under 1.1 per cent.
Security concerns are running high, with 25,000 soldiers patrolling Washington’s green zone, after supporters of outgoing president Donald Trump stormed the Capitol earlier this month.
Asian shares also rallied on Wednesday, taking their cue from overnight moves on Wall Street. The broad MSCI index of Asian shares outside of Japan rose about 1 per cent to a fresh record high, while Hong Kong’s Hang Seng index closed more than 1 per cent higher, with technology stocks outperforming.