European stocks head for third consecutive daily gain

European stock markets continued their march higher on Wednesday after last week’s wobble, while UK shares more exposed to the domestic economy rose after the chancellor’s Budget speech.

The regional Stoxx Europe 600 benchmark added 0.2 per cent in lunchtime trading, putting it on track for its third consecutive daily gain, while London’s FTSE 100 rose 0.7 per cent and Frankfurt’s Xetra Dax gained 0.6 per cent.

Shares in domestically focused UK companies, which had risen ahead of chancellor Rishi Sunak’s Budget speech, held their gains as he addressed the House of Commons. The Office for Budget Responsibility forecast a swifter and more sustained recovery than previously expected, while Sunak extended pay for furloughed workers until the end of September and carried forward a home sale stamp duty cut until the end of June.

Premier Inn hotel operator Whitbread’s stock was up more than 5 per cent, housebuilder Persimmon gained close to 4 per cent and lender Standard Chartered added 4 per cent. Sterling traded flat against the dollar to purchase $1.3954.

The mid-cap FTSE 250 index, which is more skewed towards the UK economy than the internationally focused FTSE 100, added 1.3 per cent.

Government bond prices weakened a little, pushing the yield on the 10-year US Treasury up 0.05 percentage points to 1.47 per cent on Wednesday. The yield on the equivalent German bond climbed 0.04 percentage points to minus 0.31 per cent.

On Wall Street, futures markets indicated the S&P 500 share index would open 0.3 per cent higher while the top 100 stocks on the technology-focused Nasdaq Composite would add 0.2 per cent.

Lael Brainard, Federal Reserve governor, said on Tuesday evening that last week’s wild ride in US government bond markets, driven by expectations that a strong economic recovery would stoke inflation, had “caught my eye”.

A government bond sell-off, which pushed the yields on 10-year Treasuries from just above 0.9 per cent at the start of the year to more than 1.6 per cent last week, has disturbed stock markets by changing the so-called risk-free rate that underpins a wide range of assets.

The drama in the Treasury market partly reflects bets by some traders that the Fed will be pushed into tightening monetary policy. Brainard said in comments reported by Bloomberg that it would take “some time” for the central bank to wind down its $120bn-plus of monthly asset purchases it has carried out since last March.

“Everything is pivoting on interest rates at the moment,” said Tancredi Cordero, chief executive of investment strategy boutique Kuros Associates.

After a series of record highs for global equities as recently as last month, equities were “priced for perfection” and “very sensitive” to interest rate expectations that determine how investors value companies’ future cash flows, Cordero added.

Volatility in bond and stock markets, he said, would probably continue at least until the US Senate voted on President Joe Biden’s $1.9tn economic stimulus package in the coming days.

Elsewhere, Brent crude oil prices gained 1.4 per cent to more than $63 a barrel.

Asia’s stock markets rebounded after China’s banking regulator warned on Tuesday of frothy valuations in foreign markets. The CSI 300 index of Shanghai and Shenzhen-listed stocks closed up 1.9 per cent while South Korea’s Kospi 200 added 1.3 per cent.