US and European stocks rise after central banks tighten monetary policy

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US and European stocks rose on Thursday in choppy trading, following sharp rallies in the previous session, as traders weighed developments in Ukraine and central banks’ moves to tighten monetary policy.

Wall Street’s broad-based S&P 500 share gauge had its best close in roughly a month, ending the day 1.2 per cent higher, after gaining more than 2 per cent on Wednesday. The technology-heavy Nasdaq Composite gained 1.3 per cent, the highest close since early March.

In Europe, the regional Stoxx 600 index closed 0.4 per cent higher after rising 3.1 per cent in the previous session. London’s FTSE 100 gained 1.3 per cent.

Those moves came after the Bank of England raised borrowing costs on Thursday. The BoE’s policy move followed an interest rate rise by the Federal Reserve a day earlier, the first increase since the US central bank slashed rates to zero at the start of the pandemic.

The BoE’s monetary policy committee voted eight to one to raise interest rates by 0.25 percentage points to 0.75 per cent and predicted that inflation was expected to hit 8 per cent by the end of June.

Following the decision, the yield on the UK’s 10-year gilt dropped 0.07 percentage points to 1.56 per cent, while the shorter-dated two-year gilt yield lost 0.12 percentage points to 1.27 per cent. Bond yields move inversely to their prices.

Charles Hall, head of research at investment bank Peel Hunt, said the BoE’s inflation forecast looked optimism, given that food and energy prices could rise higher if the war in Ukraine continues for months. “A lot of this inflation is supply-driven but the bank had to be seen to be doing something. [The interest rate rise] is quite middle of the road, there were no fireworks today,” he said.

The Fed on Wednesday raised its main interest rate by a quarter percentage point, in line with market expectations, in a step designed to tackle rising inflation that is expected to be stoked further by Russia’s invasion of Ukraine.

The Fed’s initial rate rise was “a little tipid” and unlikely on its own to do much to bring down inflation, said Joost Van Leenders, senior portfolio manager at Kempen Capital Management.

“The most important signal” was the central bank indicating rates that would climb at each of its next six policy meetings this year, he said, “which shows they are serious about addressing the inflation issue”.

The yield on the 10-year US Treasury note was 0.02 percentage point higher on Thursday at 2.2 per cent after briefly touching a near three-year high the previous day.

In Asia-Pacific equity markets, Chinese stocks rallied for a second day, after Beijing pledged to take measures to support the economy. Hong Kong’s Hang Seng index jumped 7 per cent, while the CSI 300 index of Shanghai- and Shenzhen-listed stocks rose by almost 2 per cent.

China’s Financial Stability and Development Committee had promised “substantial measures” on Wednesday to shore up growth and flagged other supportive actions. Concerns over the country’s growth outlook had sparked double-digit falls earlier in the week.

“Policymakers will likely walk the walk,” said Xiangrong Yu, chief China economist at Citigroup. Yu pointed to statements from a swath of top institutions, including the People’s Bank of China and the banking and insurance regulator, which all pledged to carry out the new measures.

But Yu added that there were “significant growth headwinds”, including signs of weakness from China’s property market and a surge in Covid-19 cases.

In commodity markets, the price of Brent crude settled 8.8 per cent higher at $106.64 a barrel. The international oil benchmark had approached $140 a barrel earlier this month before falling sharply.

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