European stocks waver near all-time highs on upbeat economic outlook

European stocks hovered near all-time highs on Wednesday as hopes for a global economic recovery from the pandemic continued to fuel investor optimism. 

The region’s Stoxx 600 traded close to flat early on Wednesday, after surpassing its February 2020 high and wiping out its pandemic losses in the previous session. London’s FTSE 100 edged up 0.7 per cent, while bourses in Frankfurt and Paris were little changed.

The yield on US 10-year Treasuries, an important benchmark for global borrowing, slipped to 1.64 per cent as investors awaited the minutes of the last US Federal Reserve policy meeting, set to be released later on Wednesday.

The Fed’s commitment to keep pumping support into the economy until the pandemic recovery has gathered steam, alongside US President Joe’s Biden’s multitrillion dollar stimulus plans, have boosted investor hopes on the pace of the rebound while setting off jitters about a possible wave of inflation. 

“The market is in wait-and-see mode,” said Emmanuel Cau, head of European equity strategy at Barclays, as traders weigh a substantial stock rally in the first three months of the year. “The bar for positive surprises is going higher because people are positioned for good news.”

Investors were cautious on the prospects for Wall Street trading after US equities closed flat on Tuesday. Futures tracking the Nasdaq 100 and S&P 500 pointed 0.1 per cent higher in early European dealing after the blue-chip S&P hit an all-time high on Monday. 

“Equity investors have continued to focus on the positive outlook,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “We see market confidence being well supported by continued evidence of the improving macroeconomic backdrop.”

Europe’s markets have been lifted by a rotation into value stocks, which are well-represented in the continent’s main indices. Carmakers, travel and leisure companies, and banks have staged a strong rebound this year. 

“The cyclical value stocks closely linked with economic growth — overlooked for a decade and further beaten down by the pandemic — should continue to benefit this quarter as economies restart,” said Nigel Bolton, head of European equities at BlackRock. 

The move higher in European markets came despite a third wave of Covid-19 infections on the continent that has forced countries, including Germany, France and Italy, to tighten lockdown rules.

“The market has been looking through the lockdowns,” said Cau. “The direction of travel is towards stronger growth but this view can be challenged by new variants or setbacks in the vaccine rollout.” 

Traders will watch Wednesday’s final March purchasing managers’ index in Europe for confirmation of earlier flash PMI readings, which showed strengthening business activity. A weaker result in the final gauge could signal that tighter lockdowns are starting to bite.

Asian markets had a mixed session with Japan’s Topix and Australia’s S&P/ASX 200 adding about 0.6 per cent. Mainland China’s Shanghai composite shed 0.2 per cent while Hong Kong’s Hang Seng dropped 0.8 per cent.