European stocks subdued 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 was flat, while London’s FTSE 100 gauge gained 0.2 per cent. France’s Cac 40 index was down 0.3 per cent and Germany’s Dax slipped 0.8 per cent. Futures tracking Wall Street’s S&P 500 were down 0.3 per cent, while those tracking the Nasdaq 100 index were down 0.4 per cent.

President Joe Biden’s nomination earlier this week of Jay Powell for a second term as Federal Reserve chair jolted the US government bond market, sending the price of short-term debt lower. The move spilled over into 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.

A strong report on the US labour market, showing claims for first-time unemployment benefits fell to the lowest level since the late 1960s last week, may add to that sentiment. Data on the core personal consumption expenditures price index, the Fed’s preferred inflation gauge, for October are due out in the New York morning.

The consumer price index, another inflation gauge, rose in October at its fastest annual pace in three decades, according to data released 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. The US 10-year Treasury note yield was flat at 1.66 per cent, with the German equivalent flat at minus 0.22 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 damp increasing 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 advance 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 0.2 per cent to $82.11 a barrel. President Biden on Tuesday authorised the release of 50m barrels of oil — about 2.5 days of US oil consumption — in an attempt to lower petrol prices for consumers.