European stocks hovered around their peaks after hitting record highs on Tuesday, as investors balanced concerns about rising inflation with optimism about the region’s emergence from the pandemic.
The Stoxx 600, which reached record levels on Tuesday, was up 0.2 per cent, with energy stocks among those showing the largest gains as investors bet on increased demand as the Covid-19 crisis recedes.
Germany’s Dax 30, which also hit a record on Tuesday, and France’s Cac 40, which reached a 2021 high, both rose 0.1 per cent.
In the UK, the FTSE 100 was up 0.2 per cent, led by a combination of luxury stocks and energy companies including Royal Dutch Shell and BP.
Rupert Thompson, chief investment officer at Kingswood, said the resilience of equity markets was surprising, given the lack of significant good news to push them higher. “We’re now in June, typically the weakest month of the year,” he said. “In a way they’re overdue a pause.”
Investors continue to weigh whether recent upticks in inflation will prove transitory, as central bankers who are loath to withdraw crisis-era stimulus measures have argued, or structural. Eurozone flash core inflation readings came in at 2 per cent on Tuesday for the first time since 2018, pushing at the edges of the European Central Bank’s target range.
Despite this, most analysts expect the ECB to maintain its €80bn monthly bond purchase programme when it meets next week. “We expect the ECB to look through the May print and [second half of 2021] hump in inflation . . . and focus on the medium-term outlook for inflation,” analysts from Morgan Stanley wrote.
In the US, where the recovery is more advanced, some investors fear the risk of overheating is more serious, potentially pushing the US Federal Reserve to tighten its monetary policy. “It seems to me that the inflation risk is very much concentrated in the US and going to get worse before it gets better,” said Thompson.
Bond yields fell slightly, with those of the benchmark German 10-year Bund down 0.01 percentage points to minus 0.18 and the UK 10-year gilt down 0.01 percentage points at 0.822.
Oil prices, which came close to their highest since the start of the pandemic on Tuesday, maintained their gains following a meeting by Opec+ in which members stuck to their plan to gradually release more barrels into the market.
Brent crude, the global benchmark, hit its highest level since a pandemic high in early March in intraday trading, and remained over $70 a barrel. The US benchmark, West Texas Intermediate, was close to $68 a barrel.
Wall Street looked set to open slightly down, with index futures for the S&P 500 down 0.1 per cent and the tech-focused Nasdaq down 0.17 per cent. Wall Street stocks, which have a higher weighting of growth-based technology companies, have been trailing European stocks.