European stocks faltered in early trade on Thursday as investors balanced monetary easing in China with prospects of rapid rate hikes in the US and geopolitical tensions in Ukraine.
The Stoxx Europe 600 index opened 0.3 percent higher after early morning futures trading was boosted by rallies in Asia in response to a key interest rate cut in China in a move analysts said was boosting its flagging economy would.
The European equities gauge then slipped 0.3 percent, mirroring a choppy session on Wall Street on Wednesday as markets initially rose but finished lower, with the tech-heavy Nasdaq Composite closing in correction territory.
In Asia, Hong Kong’s Hang Seng index rose more than 3 percent in response to China cutting interest rates on one- and five-year loans, lowering financing costs for mortgage borrowers and small businesses. In Tokyo, the Nikkei 225 stock index closed 1.1 percent higher.
“China is becoming less of a macroeconomic risk,” said Samy Chaar, chief economist at Lombard Odier, after the country’s GDP growth slowed to the slowest pace in a year and a half in the quarters through December.
“But this is not the dominant story” for the European and US markets,” he said, with traders mainly focusing on what the Federal Reserve will signal at next week’s meeting about rate hikes and plans to trim a bloated balance sheet to $9 trillion after buying huge amounts of US Treasuries from March 2020.
A warning from US President Joe Biden that Russia may be “invading” Ukraine and the start of corporate earnings season clouded the market outlook, Chaar added. “Slide all that together and it’s clearly difficult to find direction.”
Futures markets indicated Wall Street stocks would rise in early New York trade, with contracts on the S&P 500 up 0.2 percent and those on the tech-heavy Nasdaq 100 up 0.3 percent.
In the bond markets, Treasury prices continued to fall as dealers sold off the fixed income securities.
The 10-year government bond yield, which moves inversely to its price and underpins global borrowing costs and equity valuations, rose 0.01 percentage point to 1.84 percent. The two-year yield, which tracks policy expectations, rose 0.02 percentage points to 1.04 percent.
Futures markets have priced in around four Fed rate hikes this year, with the benchmark interest rate topping 1 percent through December after the Federal Reserve kept borrowing costs near zero since March 2020.
US inflation hit an annualized rate of 7 percent last month, the fastest pace since 1982, while unemployment fell to near pre-pandemic levels.
The Bank of England is widely expected to hike rates by a quarter point at its meeting in two weeks. On Wednesday, data showed that UK inflation hit a 30-year high of 5.4 percent in December as the cost of goods and services rose across the board.
Sterling rose 0.2 percent against the dollar buying $1.363 and held steady against the euro buying €1.199. The dollar index, which measures the British currency against six others, fell 0.1 percent.
Brent crude, the oil benchmark, fell 1 percent to $87.51 a barrel but remained close to its highest level since 2014.
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