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European stocks edge down after biggest slide since September

European stocks were subdued on Wednesday as investors weighed up concerns over US monetary policy and the spread of coronavirus, which had prompted the biggest fall for the region’s markets since September.

The regional Stoxx Europe 600 share index ticked up before dipping 0.1 per cent, while London’s FTSE 100 gauge lost 0.1 per cent. France’s Cac 40 index was down 0.2 per cent and Germany’s Dax slipped 0.4 per cent. Futures tracking Wall Street’s S&P 500 were down 0.4 per cent, while those tracking the Nasdaq 100 index were down 0.5 per cent.

President Joe Biden’s nomination earlier this week of Jay Powell for a second term as Federal Reserve chief jolted the US government bond market, sending the price of short-term debt lower. The move spilled over in to the equities market, with the Stoxx 600 sliding 1.3 per cent on Tuesday following a minor wobble on Wall Street the previous day.

Investor concerns have largely centred on expectations that Powell may pursue a slightly more aggressive approach to reining in crisis-era stimulus measures than Lael Brainard, who was seen as his main competitor for the job.

Inflation data, due to be released later on Wednesday, may help provide further clues on what course of action the Fed will pursue. Wall Street economists polled by Refinitiv are expecting the core personal consumption expenditures price index, the Fed’s preferred inflation gauge, to have increased 4.5 per cent in October from the same month last year.

The consumer price index, another inflation gauge, rose in October at its fastest annual pace in three decades, according to data released earlier this month.

“We’ve got an environment now where the market debate has turned to how high can inflation go and what will the Fed’s response be”, said Roger Lee, head of UK equity strategy at Investec. “That’s something that most people in equity and fixed income markets have never worked in.”

US and European government debt markets were largely steady ahead of the PCE release scheduled for 8.30am New York time (1.30pm London time). The US 10-year Treasury note yield inched slightly lower to 1.65 per cent, with the German equivalent flat at minus 0.23 per cent.

Elsewhere, New Zealand’s central bank on Wednesday raised interest rates by 0.25 percentage points to 0.75 per cent, in a move designed to cool the economy and dampen rising house prices.

Following its second rate rise in two months, the Reserve Bank of New Zealand also issued hawkish guidance on future moves, saying interest rates would probably need to rise above their neutral level.

In Asia, Hong Kong’s Hang Seng index was up 0.1 per cent and Shanghai’s CSI 300 index was flat.

Oil prices dipped following an earlier rally, with Brent crude down 0.24 per cent to $82.11 a barrel, even as president Biden on Tuesday authorised the release of 50m barrels of oil — about 2.5 days worth of US oil consumption — in an attempt to lower petrol prices for consumers.

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