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Europe stocks climb despite rate-hike fears; oil extends rally

Europe stocks climb despite rate-hike fears; oil extends rally
Federal Reserve boss Jerome Powell has pledged to protect the economy while reining in monetary policy - Copyright AFP/File ROBERTO SCHMIDT
Federal Reserve boss Jerome Powell has pledged to protect the economy while reining in monetary policy - Copyright AFP/File ROBERTO SCHMIDT

Europe’s stock markets rose Wednesday, with easing Omicron virus concerns eclipsing fresh fears of monetary policy tightening in both Britain and the eurozone as the world battles rocketing inflation, dealers said.

World oil prices zoomed to more seven-year peaks on renewed unrest in the crude-rich Middle East, and on expectations of resurgent post-pandemic demand.

London stocks won 0.3 percent around midday as official data showed UK inflation hit 5.4 percent in December.

That sparked speculation of another Bank of England interest rate hike in February and briefly pushed the pound to a 22-month euro peak.

Paris gained 0.7 percent and Frankfurt added 0.4 percent in early afternoon eurozone deals.

Yields for 10-year German bonds rose above zero percent for the first time since May 2019, as surging inflation also prompted fears of monetary tightening in the eurozone.

– ‘Slightly more optimistic’ –

Despite the prospect of more interest rate hikes, there remains a broad belief that the global recovery is still on track as economies reopen and fears over the less-severe Omicron coronavirus variant recede.

“We have to consider that markets have been extremely worried about the potential for further lockdowns/restrictions resulting from the recent Omicron variant,” XTB analyst Walid Koudmani told AFP.

“Since that has proven to be a less significant concern than previously expected, markets are now slightly more optimistic as many economies are expected to extend the post-pandemic recovery.”

In contrast, Asian equity markets were hit by growing fears about the US Federal Reserve’s plans to fight surging inflation by ramping up interest rates, following a hefty sell-off on Wall Street.

A rise in prices since early 2021 has forced central banks around the world to start winding back the colossal financial support put in place at the start of the pandemic, with many warning that failure to act could see them run out of control.

The main focus is now on the Fed — the central bank of the world’s biggest economy — which has so far refrained from lifting rates to bring US inflation down from four-decade highs.

Officials are currently reining in their massive bond-buying programme and aim to hike borrowing costs in March. 

Some commentators predict a 50 basis-point rise — which would be the first that big since 2000 — having initially estimated 25 points.

Expectations for a quick run-up in rates has sent Treasury yields rocketing and caused near-panic, with all three main indexes on Wall Street deep in the red so far this year, having hit multiple records in 2021.

In commodities, oil extended gains on news of an explosion at a key pipeline running from Iraq to Turkey that transports more than 450,000 barrels a day according to Bloomberg News.

That came a day after Yemen’s Huthi rebels in Abu Dhabi claimed an attack that triggered a fuel tank blast, and warned civilians and foreign firms in the United Arab Emirates to avoid “vital installations”.

– Key figures around 1215 GMT –

London – FTSE 100: UP 0.3 percent at 7,589.53 points

Frankfurt – DAX: UP 0.4 percent at 15,839.05

Paris – CAC 40: UP 0.7 percent at 7,186.68

EURO STOXX 50: UP 0.7 percent at 4,285.88

Tokyo – Nikkei 225: DOWN 2.8 percent at 27,467.23 (close)

Hong Kong – Hang Seng Index: UP 0.1 percent at 24,127.85 (close)

Shanghai – Composite: DOWN 0.3 percent at 3,558.18 (close)

New York – Dow: DOWN 1.5 percent at 35,368.47 (close)

Euro/dollar: UP at $1.1343 from $1.1325 late Tuesday

Pound/dollar: UP at $1.3632 from $1.3596

Euro/pound: DOWN at 83.20 pence from 83.30 pence

Dollar/yen: DOWN at 114.47 yen from 114.61 yen

Brent North Sea crude: UP 1.3 percent at $88.60 per barrel

West Texas Intermediate: UP 1.5 percent at $86.09 per barrel

Written By

With 2,400 staff representing 100 different nationalities, AFP covers the world as a leading global news agency. AFP provides fast, comprehensive and verified coverage of the issues affecting our daily lives.

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