European shares creep up after sharp losses in previous session

European stocks edged higher on Wednesday, recouping some losses from the previous session incurred after US Federal Reserve officials detailed their willingness to raise interest rates aggressively to battle inflation.

The regional Stoxx 600 share index added 0.4 per cent after ending Wednesday 1.5 per cent lower, as concerns about the European Central Bank following the Fed’s rapid monetary policy tightening combined with fears that sanctions against Russia could stoke higher consumer prices. Germany’s Dax added 0.4 per cent, while London’s FTSE 100 lost 0.2 per cent.

Futures trading implied Wall Street’s S&P 500 which closed 1 per cent lower on Thursday, would flatline in early dealings.

These moves came after minutes of the US central bank’s latest meeting revealed that, after it raised its benchmark interest rate by 0.25 percentage points last month, “many” policymakers viewed one or more half-point increases as appropriate if inflation remained elevated. The annual pace of consumer price increases in the US soared to a 40-year high of 7.9 per cent in February.

Nadège Dufossé, head of cross-asset strategy at investment manager Candriam, said Thursday’s trading probably showed “some short-term relief” after markets “overshot” in advance of the Fed minutes.

“There have not been large sell-offs yet, but the next phase for equity markets could be more negative,” she said, as some investors view central bank rate rises as likely to choke economic growth.

The yield on the 10-year Treasury note added 0.02 percentage points to 2.63 per cent after fierce selling of US government debt in the two previous sessions took this benchmark borrowing rate to multiyear highs. Bond yields move inversely to their prices.

The yield on the two-year Treasury note, which closely tracks interest rate expectations, declined 0.04 percentage points to 2.46 per cent, remaining close to its highest point in more than three years.

Equity markets have found support so far, however, from investors switching out of bonds, where inflation erodes the instruments’ fixed-income payments.

The Stoxx has fallen about 6 per cent this year but is trading above its closing price on February 23, the eve of Russia’s invasion of Ukraine. Wall Street’s benchmark S&P 500 share index is about 6 per cent higher than its February 23 level.

“There is a rotation towards high-quality dividend paying stocks,” said Mobeen Tahir, director of macroeconomic research at ETF provider WisdomTree, adding that companies can potentially safeguard earnings by passing on price increases to customers.

Elsewhere, Germany’s 10-year Bund yield edged 0.03 percentage points higher to 0.68 per cent as minutes of the European Central Bank’s latest meeting showed policymakers expected eurozone inflation to “remain above target in 2023, with significant upside risks”.

Brent crude, the international oil benchmark, added 2.1 per cent to $103.17 a barrel. Oil prices had fallen on Wednesday after the International Energy Agency said its members would tap emergency stockpiles to counter price pressure from potential further bans on Russian crude imports.

In Asia, Hong Kong’s Hang Seng share index fell 1.2 per cent and Japan’s Nikkei lost 1.6 per cent, mirroring falls on Wall Street in the previous session.