European stocks edge higher after Monday’s gains

London — European stock indices rose slightly in early trading on Tuesday as the equity rally slowed and investors weighed up the outlook for central bank rate cuts before US and European inflation data later in the week.

Global equity markets have surged so far this year, helped by investor enthusiasm over artificial intelligence (AI) and expectations that major central banks will cut rates.

The MSCI World Equity index hit fresh all-time highs last week after chipmaker Nvidia’s strong quarterly report. At 9.28am GMT it was up 0.1%.

MSCI’s Europe index rose 0.2%. London’s FTSE 100 and the Stoxx 600 were up less than 0.1%, while Germany's DAX was 0.4% higher.

While stocks have rallied in recent months, bond markets have seen yields rise, as investors push back their expectations for rate cuts.

“There’s a bit of a divergence there between what bonds see and how equities are behaving,” said Hani Redha, global multi-asset portfolio manager at PineBridge.

“When the market starts to feel a little saturated with all this AI-hype, then the market starts to look around and say ‘oh, where are those rate cuts that we were expecting?’ and starts to realise that financial conditions will be tighter, and that’s what can lead to a bit of consolidation,” he said.

Markets have already pushed out the likely timing of a first Federal Reserve easing from May to June. Futures imply a little more than three quarter-point cuts this year, compared with five at the start of the month.

The dollar index was down 0.1% on the day, at 103.7 and the euro was up 0.1% at $1.08585.

European government bond yields were mostly slightly higher, with the benchmark 10-year German yield up by less than one basis point at 2.432%.

The yen strengthened against the dollar, recovering from a three-month low to hit ¥150.23/$, after Japan’s core consumer inflation beat forecasts and held at the central bank’s 2% target. That reinforced expectations the central bank will end negative rates by April.

Consumer confidence data for Germany, France and the US is due later in the session, but more important for traders is inflation data due later in the week. February flash inflation data for France and Germany is due on Thursday, and for the eurozone as a whole on Friday.

January’s US personal consumption expenditures price index, which is the Fed’s preferred measure of inflation, is due on Thursday.

US treasury markets are also expected to come under pressure from large auctions — $127bn on Tuesday and $42bn on Wednesday.

“Aside from the inflation data and the robust growth data, which have been leading yields to drift higher, there’s also just a large amount of supply of securities coming from the US Treasury in terms of net issuance,” said Redha. “That needs to be absorbed by the market and tends to push yields higher.”

Gold was up 0.2% at $2,035.48/oz and bitcoin was about 3.6% higher at $56,613.

Reuters