European stocks tick up after Fed vows continued support for recovery

Global stocks ticked up on Thursday after the Federal Reserve underscored its vow to keep up its support for the economic recovery from Covid-19. 

European equities rose modestly with the UK’s FTSE 100 up 0.4 per cent after its mid-cap equivalent, the FTSE 250, hit a record high on Wednesday. The region-wide Europe Stoxx 600 index also moved 0.4 per cent higher. 

US government bonds were steady, with the yield on the 10-year note holding around 1.66 per cent. Bond markets have suffered from heavy selling in recent months as investors worried that the Fed’s ultra-loose monetary policy would supercharge the economic recovery from the pandemic and might unleash inflation. Some investors still expect the Fed will have to tighten policy earlier than planned. 

Minutes from the central bank’s policy meeting, released on Wednesday, showed Fed policymakers were largely sanguine about the chances for a sustained rebound in inflation and committed to keep policy easy until employment recovered from its pandemic hit. 

“Those big mental readjustments by the market contemplating the growth outlook and what that would mean for inflation have been fully digested,” said April LaRusse, fixed income product specialist at Insight Investment. 

The S&P 500 closed at a new high following the Fed readout, breaking a record the blue-chip index set on Monday.

“After a record rally in global equities over the last year, we see slower progress from here. Unlike last November, stocks are no longer lagging [behind] the strong economic news flow,” cautioned Matthew Garman, equity strategist at Morgan Stanley.

Stock traders were unmoved by news of a sweeping reform to international corporate taxation proposed by the Biden administration that could see hefty tax bills for some multinationals.

Samy Chaar, chief economist at Lombard Odier, said the squeeze on earnings from tax rises would be counterbalanced by the high level of stimulus boosting demand. “If what happens on the tax front results in more spending, it will be seen as a net positive in the end,” he said.

Tobias Levkovich, chief US equity strategist for Citi, said investors were too upbeat about the prospect of tax increases. 

“Sentiment is in very worrisome territory as is valuation, yet money flows continue to push indices higher. Huge fiscal stimulus and supportive central banks have created the notion of there being no need to be risk averse,” said Levkovich.

Asian bourses were largely in positive territory, with Hong Kong’s Hang Seng adding 1.1 per cent. Australia’s S&P ASX 200 added 1 per cent while China’s CSI 300 advanced 0.2 per cent. Japan’s Topix shed 0.8 per cent. 

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