European equities made small gains in early morning trade on Tuesday, dampened by stronger French and Spanish inflation data that fueled investor fears that interest rates in the euro zone could remain high to prevent a rise in prices.
In the regions Stoxx 600 rose 0.1 percent and Germany Dax was 0.2 percent more, recovering from the initial decline and taking cues from further gains in the outlook at the opening on Wall Street.
Stock and bond markets were unfazed in early trade by hotter-than-anticipated inflation data from France and Spain, the eurozone’s two biggest economies. Consumer prices rose 7.2 percent in the year to February, from 7 percent the previous month. Economists have predicted no change. In Spain inflation rose 6.2 percent in the year to February, more than 5.9 percent in January and also above the fall to 5.5 percent economists have forecast.
The reading added to investors’ concerns that the European Central Bank will need to extend its aggressive policy of raising rates for longer to curb inflation. European government bond yields also rose as prices fell, with yields on German Bunds hitting a new 12-year high.
Investors in the swaps market expect the ECB’s interest rate to rise below 4 percent by the end of the year. The yield on 10-year German Bunds rose 0.07 percentage points to 2.64 percent – the highest level since June 2011.
“The question is for how long interest rates will increase and at what level, as well as if there will be widespread effects from the labor market,” said Mabrouk Chetouane, head of global market strategy at Natixis Investment Managers.
U.S. futures pointed to a higher open in New York, with the blue-chip S&P 500 and the tech-heavy Nasdaq Composite rising 0.2 percent. US indices rebounded overnight after their biggest weekly fall in two months last week.
“Last year’s pessimism seems to have subsided despite concerns about inflation, future interest rate hikes and growing geopolitical concerns. . . At the same time, interest rate hikes are increasing,” said analysts at SEB Research.
The yield on 10-year US Treasuries increased by 0.02 percentage points to 3.94 percent, while the two-year benchmark, which is more sensitive to currency, gained 0.01 percent, to 4.8 percent.
The dollar index, which measures the greenback against a basket of six peer currencies, was flat while the euro rose 0.1 percent. Sterling gained 0.2 percent, after rising 1 percent on Friday as Britain and the EU reached a deal on post-Brexit trade rules.
Brent crude rose 1.3 percent to $83.48 a barrel, while WTI, the U.S. benchmark, gained 1.4 percent to $76.75 a barrel.
Hong Kong’s Hang Seng index fell 0.8 percent, while China’s CSI 300 rose 0.6 percent.