European stocks climb ahead of Fed decision on bond-buying programme3 min read

European stocks rose on Wednesday, hours before the Federal Reserve was expected to announce plans to quicken its exit from the huge bond-buying programme that helped steady markets at the height of the coronavirus pandemic. </p>

The Stoxx Europe 600 index gained 0.4 per cent in early trading after closing 0.8 per cent lower on Tuesday. London’s FTSE 100 slipped 0.3 per cent and Germany’s Dax advanced 0.3 per cent. In Asia, Hong Kong’s Hang Seng index fell 0.9 per cent and Tokyo’s Nikkei 225 added 0.1 per cent.

However, investors’ attention will be trained on Washington where, after two days of talks, US central bankers are poised to deliver their verdict on the speed at which to taper asset purchases.

“The Fed is likely to speed up tapering and hike rates by the summer for sure, maybe even earlier,” said Jorge Garayo, global head of inflation strategy at Société Générale.

He added that even the emergence of the highly infectious Omicron coronavirus variant was unlikely to derail the central bank’s plans. “The variant probably won’t interfere with its script. Everyone thinks [the Fed] will accelerate tapering . . . if they don’t, it would be a surprise,” said Garayo.

Pressure on policymakers to hasten the end of their crisis measures rose on Tuesday when the Bureau of Labor Statistics announced a record rise in US producer prices. Wholesale prices increased 9.6 per cent in the 12 months to the end of November, the biggest annual rise on records dating from 2010.

The consumer price index, published by the BLS last week, increased 6.8 per cent from a year ago — the fastest annual pace since 1982. The data led some moderate Democrats concerned about the electoral fallout of high prices to call for an immediate tightening of monetary policy.

Across the Atlantic, both the European Central Bank and the Bank of England are due to deliver monetary policy announcements this week.

While most analysts expect the ECB to not turn off its monetary stimulus taps until at least 2023, a combination of rising Omicron infections, slowing growth and high prices have divided opinion on how the BoE should act.

Kristalina Georgieva, IMF managing director, stuck her head above the parapet on Tuesday, urging UK rate-setters to “withdraw the exceptional support provided during 2020” or risk inflation rising to about 5.5 per cent early next year.

The UK Office for National Statistics said on Wednesday that inflation rose to an annual pace of 5.1 per cent in November from 4.2 per cent the previous month. It marked the highest rate of price growth in a decade.

Following the figures, which show inflation running at more than two-and-a-half times the BoE’s 2 per cent target, traders stepped up bets on a rise in UK interest rates this week. Markets are now pricing in a roughly 50 per cent probability of an increase to 0.25 per cent at Thursday’s BoE meeting. The pound gained 0.2 per cent against the dollar to trade at $1.327.

Additional reporting by Tommy Stubbington in London

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