European stocks build on record highs

European stocks built on an all-time high on Monday as traders bet on central banks continuing to pin borrowing costs at ultra-low levels to support the global economic recovery from the pandemic.

The Stoxx Europe 600 climbed 0.1 per cent, after finishing last week at a record.

Futures markets signalled that the US blue-chip S&P 500 index would open flat at the New York opening bell, maintaining the fresh high it hit at Friday’s close. Contracts that wager on the direction of the top 100 stocks on the technology-focused Nasdaq Composite index rose 0.3 per cent.

The US Federal Reserve, which begins its monthly two-day meeting on Tuesday, is widely expected to maintain its $120bn of monthly bond purchases that have eased financial conditions for companies and households since March last year. These asset purchases, which have been followed by rate-setters in Europe and the UK, have lowered the yields on government bonds, reducing corporate borrowing costs and boosting the appeal of riskier assets such as equities.

Despite an increase in headline US consumer price inflation to 5 per cent in the 12 months to May, Fed officials have maintained that the price rises are a temporary effect of industries reopening after coronavirus shutdowns.

“A key challenge” for Fed chair Jay Powell would be to “sound a bit less dovish” about the future path of central banks’ bond purchases “without sounding so much less dovish” that he triggered a broad decline in stock and bond markets, said analysts at TD Securities.

Fed vice-chair Richard Clarida last month called for a debate about tapering the monthly bond purchases as the US recovery accelerated.

“Chair Powell is likely to comment on the tapering discussions at his press conference [on Wednesday], but he is unlikely to make any commitment that would reduce flexibility,” strategists at Barclays wrote in a research note.

This week, the world’s most influential central bank will also update its so-called dot plot, a consensus of its policymakers’ predictions of when interest rates will rise from their current record lows.

Government bond markets were steady ahead of the Fed meeting. The yield on the 10-year US Treasury was virtually unchanged on the previous session at 1.457 per cent. The yield on Germany’s equivalent 10-year Bund was also flat, at minus 0.273 per cent.

The dollar index, which measures the US currency against those of trading partners, dipped 0.1 per cent. The euro was up 0.1 per cent against the dollar, purchasing $1.211. Sterling was flat at $1.410.

Brent crude, the international oil benchmark, gained 0.6 per cent to $73.10 a barrel.