European stocks rise ahead of Fed comments on monetary policy

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European stocks rose on Tuesday as investors cheered strong earnings from Swiss bank UBS and looked ahead to the US central bank reaffirming its commitment to a loose monetary policy.

The benchmark Stoxx 600 index gained 1.1 per cent, following two days of losses. Germany’s Xetra Dax rose 2 per cent and the UK’s FTSE 100 added 0.9 per cent.

This came after UBS pledged to return billions more to shareholders as surging income for the world’s super wealthy led to a sharp rise in 2020 profits, despite the pandemic.

UBS’s US rival Goldman Sachs last week reported record fourth-quarter revenues, driven by a boom in its trading division as global stock markets hit successive record highs.

“We are having another great earnings season,” said Ben Laidler, chief executive of investment strategy group Tower Hudson Research, after coronavirus lockdowns had prompted analysts and investors to become “overly cautious” about how companies were performing.

In the US, companies that have released quarterly earnings so far had beaten Wall Street forecasts by an average of 22 per cent, said Mr Laidler — a similar performance to the previous quarter.

“You can see why a big-name European bank reporting strong results would really lift confidence in European markets,” added Yuko Takano, global portfolio manager at Newton Investment Management. Ms Takano cautioned, however, that the outlook for European economies “remains murky” because of coronavirus lockdowns in the region.

Futures markets indicated that the blue-chip S&P 500 equity index and the top 100 stocks on the technology-focused Nasdaq Composite would trade flat after New York’s opening bell, as investors took some profits ahead of Apple, Microsoft and Facebook reporting fourth-quarter results this week.

Optimism driven by forecasts that the iPhone-maker would report a record $100bn in revenues for the final three months of last year helped propel the Nasdaq to a record high on Monday.

Ms Takano said earnings season was “a good time for investors to take some profits” in case any aspects of companies’ outlook did not support tech groups’ high market valuations.

Investors were also looking ahead to a press conference by Federal Reserve chairman Jay Powell on Wednesday, where he is expected to assuage fears of an early exit from the bank’s $120bn-plus bond-buying scheme that has kept borrowing costs ultra-low and driven stock market rallies.

Mr Powell has pushed back against talk of the Fed taking a more hawkish stance, despite the prospect of higher US growth and inflation spurred by a huge stimulus package that President Joe Biden is urging lawmakers to approve.

Mr Biden’s stimulus plan has run into opposition from some Democrats and Republicans who are concerned about the $1.9tn price tag. The US president signalled on Monday he was open to compromise on some elements of the package, such as lowering the personal income threshold for $1,400 stimulus cheques.

“Despite the high expectations for fiscal policy, the stance of monetary policy is likely to remain unchanged for a while,” said Philip Marey, US strategist at Rabobank.

The yield on the 10-year US government bond, which crossed 1 per cent for the first time since March earlier this month, was steady at just under 1.04 per cent. The dollar, as measured against a basket of currencies, inched 0.1 per cent higher. Brent crude, the international oil benchmark, was 0.7 per cent higher at $56.27 a barrel.

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