European stocks steady ahead of US inflation data and ECB meeting

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European equities hovered around an all-time high as investors held back from placing further bets ahead of a European Central Bank meeting and US inflation data later in the week.

The Europe Stoxx 600 index added 0.1 per cent in early dealings, while the UK’s FTSE 100 gained 0.2 per cent. Futures markets signalled trading would be equally subdued on Wall Street, with the S&P 500 expected to flatline at the New York opening bell.

“Among market participants there is a wait and see mood,” said Catherine Doyle, investment specialist at Newton Investment Management. “Worries about inflation are preying on investors’ minds,” she added, as well as heightened geopolitical tensions as US president Joe Biden attempted to build a global coalition to deal with shared concerns about China.

European shares have gained ground on US equities in recent months, after coronavirus vaccine programmes picked up following initial delays and lockdown restrictions were eased. Index provider MSCI’s gauge of large-cap shares in eurozone countries has risen more than 9 per cent in the last quarter, in dollar terms, compared with a 6.3 per cent gain for its US counterpart.

Some analysts expect the ECB on Thursday to signal it plans to slow the pace of its emergency bond-buying programme, which has lowered borrowing costs for the region’s companies and governments, in response to improving economic conditions.

“The Euro area activity outlook has brightened,” analyst at Goldman Sachs wrote in a research note. The central bank, they added, was now likely to “guide markets towards” slower asset purchases.

European government bonds were steady ahead of the ECB meeting, with the yield on the benchmark German 10-year Bund 0.01 percentage point lower at minus 0.207 per cent. The yield on the US 10-year Treasury also declined by the same amount to 1.557 per cent. Bond yields move inversely to prices.

The moves came ahead of US inflation data on Thursday. Analysts surveyed by Bloomberg expect it to show that consumer prices, excluding volatile food and energy costs, rose by 3.4 per cent in May over the same month last year. This would represent the strongest year on year price rise since 1993.

Federal Reserve chair Jay Powell has maintained for months that bursts of inflation would be a temporary effect of industries reopening after last year’s pandemic-enforced shutdowns. But investors were concerned that the Fed could be “behind the curve” and then react by swiftly tightening monetary conditions, Newton’s Doyle said.

The dollar index, which measures the greenback against trading partners’ currencies, gained 0.2 per cent on Tuesday as demand for the haven asset increased ahead of Thursday’s inflation release and the Fed meeting.

The euro fell 0.1 per cent against the dollar to $1.2172. Sterling declined 0.3 per cent to 1.4138 as concerns mounted that a rise in coronavirus cases would push back the UK government’s June 21 deadline for easing lockdown restrictions.

Asian markets were mostly subdued, with Hong Kong’s Hang Seng index falling 0.02 per cent and Tokyo’s Topix adding less than 0.1 per cent. China’s CSI 300 share index dropped 0.9 per cent, pushed lower as investors sold out of a group of liquor stocks that had become highly valued.

Brent crude, the international oil benchmark, fell 0.8 per cent to $70.95 a barrel.