European stock markets started the second quarter cautiously higher as investors balanced tighter coronavirus restrictions on the continent with US president Joe Biden’s $2tn infrastructure plan to kickstart the US economy.
The Stoxx 600 equity index added 0.5 per cent in late-morning dealings, putting it within touching distance of its pre-pandemic record high. This came after Biden on Wednesday followed his $1.9tn pandemic relief package with proposals to boost spending on transport infrastructure, clean energy and broadband. The UK’s FTSE 100 added 0.8 per cent and Germany’s Xetra Dax rose 0.4 per cent.
But optimism was capped after French president Emmanuel Macron announced a four-week national lockdown and Italy extended its current restrictions to the end of April as a third wave of the pandemic took hold on the continent and vaccine rollouts continued to be delayed.
“There is a real divide across the Atlantic in terms of growth outlook now,” said Christian Keller, head of economics research at Barclays. “But Europe will get some spillover from US growth and China has recovered rapidly, while Europe will catch up on vaccinations.”
Eurozone factory activity also expanded at its fastest pace in 24 years in March, according to a purchasing managers’ index produced on Thursday by IHS Markit, underscoring the links between the bloc’s manufacturers and customers in faster-growing regions.
In bond markets, investors bought back in to US Treasuries that had sold off heavily in advance of Biden’s infrastructure speech in Pittsburgh on Wednesday. The yield on the benchmark 10-year bond, which moves inversely to prices, declined 0.02 percentage points to 1.72 per cent.
While bond investors remain poised for stimulus spending to jolt US inflation higher and put pressure on the Federal Reserve to raise interest rates sooner, analysts forecast significant political opposition to the $2tn spending plan.
“Republican low-tax advocates will oppose Biden’s plan to fund his spending proposals with tax hikes that will partially undo Donald Trump’s 2017 corporate tax cuts,” Yanmei Xie and Tan Kai Xian of research house Gavekal wrote in a note. “Moderate Democrats have already voiced their reservations, and even a single defection in Congress could scupper the plan.”
In Asia, Hong Kong’s Hang Seng index closed 2 per cent higher after Chinese technology stocks rallied in an echo of moves on Wall Street in the previous session. Japan’s Nikkei 225 added 0.7 per cent and China’s CSI 300 gained 1.2 per cent.
The dollar, as measured against a basket of major currencies, dipped 0.1 per cent but remained around its strongest level since November last year. The euro rose 0.1 per cent against the dollar, purchasing $1.17. Sterling lost 0.1 per cent, buying $1.376.
Brent crude, the international oil benchmark, climbed 2.1 per cent to $64.1 a barrel ahead of an Opec+ meeting where producers will discuss output plans in the light of the latest round of Covid-19 restrictions in Europe.