European stocks ride China optimism, euro zone yields at highs

By Elizabeth Howcroft

LONDON, (Reuters – European stocks rose Friday morning due to investors reacting to signs that China is experiencing economic recovery. But, yields on government bond bonds remained at their highest point in many years due to expectations of a European Central Bank Rate rise.

Investors are trying to decide the direction of Federal Reserve rate rises after recent good U.S. data.

Stock markets rose overnight on Wall Street. Analysts attribute this to Raphael Bostic (Atlanta Federal Reserve President), who stated that the Fed should keep them in business. “steady” quarter point rate hikes.

Asian trading continued to show gains. Investors were optimistic about signs of Asia’s second largest economy showing steady recovery following China’s December lifting of COVID restrictions.

A PMI survey found that China’s service sector grew at the fastest rate in six years, in February. This led to a solid increase in employment.

The MSCI global equity index tracks shares from 47 countries. It was 0.3% higher at 0940 GMT. The index is expected to increase 0.8% for the week.

Europe’s STOXX 600 rose 0.6% while London’s FTSE 100 rose 0.2%.

“We seem to be at a tug-of-war between the China opening theme which basically means that the Fed repricing and global growth expectations higher are re-rated,” Vasileios GIONAKIS, European head for FX strategy for Citi, stated the following:

Gkionakis said that although risk assets are facing headwinds from tighter monetary policies global demand is rising.

The October PMI survey data showed that the eurozone’s recovery was picking-up pace.

The yields on Eurozone government bonds were at their highest level in many years after Thursday’s inflation data. The market expects that the ECB will raise its terminal interest rate to around 4%, as a result.

Madis Muller (Estonia’s central bank chief) argued for higher ECB rates on Friday. Luis de Guindos was the vice president of ECB and warned about persistent inflation.

The yield on the U.S. Treasury 10 year note fell to 4.0067% compared to Thursday’s peak of 4.091%.

The benchmark German 10-year yield was 2.744%, which is its highest point since 2011. It is now on track to post its biggest weekly increase since December.

The euro rose 0.1% to $1.0609, while the U.S. dollar fell 0.2% against a basket currency.

Brent crude futures were down 0.2%, and West Texas Intermediate crude crude futures decreased 0.3%.

As the crypto-focused bank Silvergate’s crisis worsened, cryptocurrency suffered. Bitcoin plunged 4.7% to $22,373, which is the lowest level since Feb 15.

(Reporting by Elizabeth Howcroft; Editing by Alexander Smith