European equities and US stock market futures rose ahead of Joe Biden’s inauguration on Wednesday, propelled by optimism that the president-elect’s $1.9tn stimulus spending plan could help insulate the global economy from the damage wrought by coronavirus.
Europe’s benchmark Stoxx 600 index and Germany’s Xetra Dax gained 0.6 per cent by late morning in London, while the UK’s FTSE 100 added 0.1 per cent.
Futures markets signalled that the blue-chip S&P 500 index would open 0.4 per cent higher when Wall Street begins trading, following an advance on Tuesday driven by a pledge from Treasury secretary nominee Janet Yellen to “act big” on fiscal stimulus.
“Investors see a Goldilocks scenario for stock markets,” said Silvia Dall’Angelo, global economist at UK fund manager Federated Hermes, citing a popular term for moderate economic growth and inflation.
While “massive” US stimulus spending was expected to feed faster price rises this year, Ms Dall’Angelo added, the US central bank was unlikely to respond with an interest rate increase that would knock companies’ earnings prospects.
“Markets are relying on monetary policy to remain quite accommodative,” she said, noting comments last week by Federal Reserve governor Jay Powell that the central bank was unlikely to respond to any economic recovery “too early.”
Contracts on the tech-heavy Nasdaq 100 index gained 0.9 per cent, boosted by a 13 per cent rise for Netflix shares in pre-market dealings after the streaming service passed 200m subscribers in its latest earnings update and promised share buybacks.
Mr Biden’s promised economic programme has added fuel to the global rally in riskier assets since the depths of the coronavirus crisis. “The US stimulus will increase global demand, which will benefit European companies,” added Francesco Sandrini, a multi-asset fund manager at Amundi.
“But we think European equities are set for a pause,” he added, as investors assess the “further economic hits from lockdowns” against the pace of vaccination programmes that has so far been sluggish in some countries.
German chancellor Angela Merkel and state leaders agreed on Tuesday evening to extend the nation’s lockdown until mid-February. This came hours after the UK recorded its largest daily increase in deaths from coronavirus, with 1,610 people dying within 28 days of a positive test.
In currencies, sterling rose to its highest in eight months against the euro, gaining 0.6 per cent to purchase just under €1.13, after stronger-than-expected inflation data for December signalled the UK’s economic slowdown may be less bad than analysts had feared.
The data will reduce the pressure on the Bank of England to ease interest rates further. Ten-year gilt yields pushed 0.01 percentage points higher to 0.3 per cent, having already risen from just above 0.17 per cent earlier this month.
Growing anticipation of higher inflation has driven a reordering in US markets since the Democrats won control of the Senate earlier this month. A measure of inflation expectations derived from the price of inflation-protected debt instruments is running above 2 per cent.
Gold, commonly used as a hedge against inflation eroding the value of cash and government bonds, gained 0.7 per cent to $1.852 an ounce on Wednesday.
US government bonds, seen as a haven asset but one which has sold off in recent weeks as inflation expectations have risen, held steady ahead of Mr Biden’s inauguration, yielding 1.1 per cent.
Security concerns are running high, with 25,000 soldiers patrolling Washington’s green zone, after supporters of outgoing president Donald Trump stormed the Capitol earlier this month.
In Asia, Hong Kong’s Hang Seng index closed 1.1 per cent higher, while mainland China benchmark the CSI 300 and South Korea’s Kospi both gained 0.7 per cent.