Stocks shine as US inflation muted, stimulus nears

LONDON — European and US equities mostly pushed higher, striking records on both sides of the Atlantic, as US inflation remained muted and the massive $1.9 trillion stimulus programme neared the legislative finish line on Wednesday.

This year's global equities rally on stimulus and the vaccine-driven reopening of the global economy has recently hit an air pocket over fears over the prospect of soaring inflation and rising interest rates.

As approval of US President Joe Biden's vast COVID-19 stimulus nears, investor focus has been on the impact of an expected post-lockdown spending splurge by the government and Americans.

Thus, markets were paying keen attention to US consumer price inflation data for February, which in the event rose only by 0.1 per cent over the month excluding volatile food and energy prices.

Annual "core" inflation, actually dipped a tenth of a percentage point to 1.3 per cent.

"Wednesday's data does suggest that, for now at least, the fears over inflationary pressures have been overstated," said market analyst Connor Campbell at Spreadex.

"Quick to express their relief, investors poured into a pricey Dow Jones, sending it more than 300 points higher" to strike an intra-day record peak of 32,200.

In Europe, Frankfurt's DAX also set records for a third day in a row, closing above 14,500 for the first time. Paris set a one-year high, nearing the record it set just before the pandemic, but London dipped.

Inflation concerns had recently pushed investors to sell their holdings of government bonds, as they worried that inflation would eat into their returns.

The markets will be watching an auction of 10-year US government bonds closely.

Fears that inflation would force the Federal Reserve to begin winding back ultra-loose monetary policies — including record low interest rates — that have been a key driver of the year-long equities rally, saw investors sell off equities last week.

Tech stocks, which are particularly sensitive to interest rates, were hit the hardest with the tech-heavy Nasdaq Composite actually falling into correction territory — a drop of more than 10 per cent from its record high set last month.

But the Nasdaq bounded higher on Tuesday, soaring 3.7 per cent, and was up 0.5 per cent in late morning trading on Wednesday.

The House of Representatives was expected to give final approval to the package later Wednesday, the final step before it is sent to Biden for signature into law.

In addition to $1,400 checks for most Americans, the package also extends supplemental unemployment insurance and provides money for state and local governments, many of which have seen their finances eroded by the pandemic.

"While traders have been looking for this package as means to turbocharge the US economic recovery, there are plenty of questions over the impact it could have upon inflation," said IG analyst Joshua Mahony.