European stocks rise as traders search for interest rate hints

European stocks rose at the open on Monday, extending a short rally, as investors awaited economic data and comments from central banks to provide more evidence on the future path for interest rates.

The benchmark Stoxx 600 rose 0.1 per cent in the first hours of trade, with Germany’s Dax up 0.3 per cent.

The FTSE 100 fell 0.2 per cent, weighed down by mining stocks Anglo American and Rio Tinto, as metal prices fell in the wake of a cautious economic outlook from China. The duo lost 3 per cent and 2.9 per cent respectively.

The gains on Monday followed a rebound for benchmark indices on Friday. Stocks have wobbled as the yields on US government debt hit multiyear highs last week.

Investors have been forced to readjust their forecasts for interest rates and economic growth in the US and Europe for this year after a string of data in February indicated a series of aggressive interest rate rises had yet to fully tame inflation.

Analysts at Barclays said there had been a “stark reversal in Europe’s economic outlook” since January. “This is thanks to much lower than expected energy prices alleviating cost of living and economic competitiveness worries, as well as higher exposure to China reopening, and a still strong global employment backdrop.”

Illustrating the shift in investors’ thinking, last week the San Francisco Federal Reserve bank updated its proxy fed funds rate for February to 6.3 per cent. The rate more broadly reflects changes in financial conditions than the policy rate of 4.75 per cent. This proxy fed fund rate is the highest it has been in 22 years and the change is the fastest in more than 50 years, said analysts at SEB.

US futures rose, with the blue-chip S&P 500 flat and the tech-heavy Nasdaq up 0.1 per cent.

Yields on two-year Treasuries, which are more sensitive to monetary policy, fell 0.02 percentage points to 4.84 per cent on Monday as traders sold government debt in anticipation of a longer period of higher interest rates.

The yield on the 10-year note lost 0.04 percentage points to 3.93 per cent, having hit 4 per cent last Wednesday. Yields on 10-year German Bunds fell 0.05 percentage points to 2.67 per cent.

Traders expect to take direction from European retail sales data, due on Monday morning. “We’ve had surveys which held up better than expected, but the retail sales data is the first hard bit of data,” said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.

Later this week Federal Reserve chair Jay Powell will give his twice-yearly address to Congress and Christine Lagarde, president of the European Central Bank, will speak in public on Wednesday. The US will also release the closely watched non-farm payrolls data on Friday.

The US dollar index, which measures the greenback against a basket of six peer currencies was flat.

Brent crude fell 0.5 per cent at $85.34 per barrel, while WTI, the US equivalent, also lost 0.5 per cent to $79.27 per barrel.