European stocks rose and government bond yields edged higher ahead of the release of data later on Thursday forecast to show US inflation last month jumped to a fresh 40-year high.
Europe’s Stoxx 600 index climbed 0.4 per cent in early dealings, adding to gains in the previous session, while London’s FTSE 100 rose 0.3 per cent. Futures contracts tracking Wall Street’s S&P 500 index and the tech-heavy Nasdaq Composite slipped 0.1 per cent and 0.2 per cent respectively.
Meanwhile, government bond yields — which fall as their prices rise — ticked up. The sovereign debt market had on Wednesday rebounded from a sell-off earlier in the week fuelled by concerns that the US Federal Reserve and European Central Bank may raise rates more aggressively than expected to tackle rising prices.
The yield on Germany’s 10-year Bund, which last month traded in positive territory for the first time since 2019, rose 0.02 percentage points to 0.24 per cent. The yield on Italy’s 10-year bond — viewed as particularly sensitive to rising rates due to the government’s high debt — rose 0.03 percentage points to just under 1.8 per cent.
Across the Atlantic, the yield on the 10-year US Treasury added 0.01 percentage points to 1.94 per cent.
Investors will later today learn the rate at which US inflation advanced in January, with economists predicting that consumer price index data will show annual growth of 7.3 per cent, the highest reading since 1982.
Mike Zigmont, head of trading and research at Harvest Volatility Management, said the headline figure would provide “a fundamental catalyst for a big push up or down” in stock markets that have whipsawed back and forth for weeks.
Jim Paulsen, chief investment strategist at The Leuthold Group, said the next few months of inflation data were “apt to be hot” given the very low price gains a year ago, although he expects prices to cool later in the year as those base effects filter out of comparisons.
“By April . . . the delayed effect of more restrictive policies should start to restrain inflationary forces,” Paulsen said in a note, referencing the Fed’s planned withdrawal of monetary stimulus.
If, however, January’s inflation numbers come in higher than expected, central bankers may come under renewed pressure to tighten financial conditions harder and faster over the course of 2022. Investors are currently pricing in five rate increases from the Fed by the end of the year.
Brent crude, the international oil benchmark, rose 0.2 per cent to $91.73 a barrel.