European stocks boosted by brighter US economic outlook

European stock markets climbed after the US Federal Reserve raised its growth forecasts for the world’s largest economy, adding fuel to reopening trades that bet on strong performance by Europe’s energy producers, industrial groups and banks.

The Europe-wide Stoxx 600 equity index gained 0.4 per cent, with its banks sub-index rising 2 per cent as higher market borrowing costs can boost lenders’ prospects for fatter profit margins. Basic materials stocks also trended higher. London’s FTSE 100 traded flat while Germany’s Xetra Dax rose 0.9 per cent.

By contrast, contracts that wager on the performance of the top 100 stocks in the technology-focused Nasdaq Composite index dropped 1.7 per cent. Those on the broader S&P 500 index, which also has a larger concentration of tech busineses than Europe’s main stock indices, fell 0.6 per cent.

“Tech valuations have . . . gone very high by some metrics,” said Anna Stupnytska, global macro economist at Fidelity International.

“As we move towards higher economic growth it is value areas of the market that will attract more investment,” she said, referring to economically sensitive businesses such as energy producers and banks.

“Expect energy stocks together with materials and utilities to do well in times of rising inflation, while technology stocks may perform poorly, ” added Joachim Klement, strategist at stock broker Liberum. Higher commodity prices would boost the profit margins of such companies, Klement explained, because they “can pass on higher input prices, and then some, to customers”.

The yield on 10-year US Treasuries climbed by 0.09 percentage points to just shy of 1.73 per cent, its highest level since January last year, as investors sold the debt.

UK government bonds also endured selling, with the yield on the 10-year gilt rising 0.06 percentage points to 0.877 per cent. This came as the Bank of England once again held its main policy rate 0.1 per cent, the lowest level on record, and maintained the target for its bond-buying programme at £895bn , almost double its pre-pandemic level.

Sterling fell 0.2 per cent against the dollar to purchase $1.374 as the BoE said it would “not intend to tighten monetary policy”, until there was clear evidence of recovery in the labour market and the 2 per cent inflation target could be achieved “sustainably”.

The dollar, as measured against a basket of currencies, gained 0.2 per cent.