LONDON (Reuters) – European equities rallied from a shaky start and the dollar rose slightly on Wednesday as 10-year US Treasury yields fell from a 10-month high, aided by policymakers pulling out against talk that the Fed was cutting back .
After Asian equities posted modest gains, European equities opened lower and then rose slightly, with the pan-European STOXX 600 rising 0.2% on the day at 0918 GMT.
The MSCI world stock index, which tracks stocks in 49 countries, rose 0.2%, back to all-time highs, and MSCI’s main European index rose by a similar amount.
China registered its biggest daily jump in COVID-19 cases in more than five months, despite four cities being closed, and the Dutch government said on Tuesday it would extend lockdown measures.
Investors are closely following the discussion about tapering, that is, the possible easing of monetary stimulus measures by the Fed.
Several Federal Reserve policymakers, including Loretta Mester, Esther George, James Bullard and Eric Rosengren, harked back to the idea that the Fed would wind down its asset purchases soon.
These comments, along with a well-received 10-year Treasury auction, pushed US 10-year yields back down from the 10-month high of 1.187% reached in the previous session.
At 0919 GMT, the benchmark return was 1.1189%.
The yield curve, which was the steepest since May 2017 based on expectations for major fiscal stimulus under a new democratic government, slipped slightly to 96.8 basis points.
“We believe the potential for fiscal stimulus, along with a normalization of economic activity as vaccine introduction increases, warrant slightly higher yields on US Treasuries,” UBS strategists wrote in a note to clients.
“To recognize this, we raised our 10- and 30-year US Treasury yield forecasts this year by 0.1 percentage points to 1.0% and 1.7% respectively by the end of December,” they said, adding that they don’t expect the run-up in interest rates to go much further than that, because central banks remain accommodative and the Fed has indicated a tolerance for higher inflation.
In light of the recent interest rate hike, December inflation data for December in the US will be monitored closely at 1330 GMT.
The US dollar recently broke its downward trend with a three-day winning streak and then fell again on Tuesday. It was stable overnight, but picked up on Wednesday during early London trading, raising the question of whether the recovery was over.
At 0920 GMT, it was up 0.1% to 90,136 against a basket of currencies.
With at least five Republicans joining Democrats to impeach President Donald Trump after storming the U.S. Capitol, Marshall Gittler, head of investment research at BDSwiss Group, said preventing Trump from running for office in the future, said Trump would delete it permanently. premium “of the dollar and let the currency weaken further.”
In Europe, interest rates on government bonds fell. Italian bonds, which were sold on Tuesday due to political uncertainty, lagged Germany.
Eurozone industrial production data for November is scheduled at 1000 GMT.
Against the dollar, the euro fell about 0.2% at $ 1.21875 at 9:20 a.m. GMT. Riskier currencies such as the Australian and New Zealand dollar also fell as the US dollar moved higher.
Bitcoin was up slightly, but at $ 34,999, it was still about 17% lower than its all-time high of $ 42,000 it hit last Friday.
Oil prices rose and rose for the seventh consecutive day, with US West Texas Intermediate and Brent crude oil both trading at their highest levels since February, after industry data showed a larger than expected decline in inventories and investors impacted the shake off pandemic.
Reporting by Elizabeth Howcroft, edited by William Maclean