European equities pulled back on Wednesday, interrupting a stunning rally, as investors awaited the latest assessments from policymakers on the strength of the economic recovery.
The Stoxx Europe 600 index has gained more than 14 per cent so far in November, putting it on track for a record month, fuelled by optimism about Covid-19 vaccines. But the continent-wide benchmark slipped 0.3 per cent on Wednesday morning, while the UK’s FTSE 100 fell 0.6 per cent.
Overnight on Wall Street, the S&P 500 climbed 1.6 per cent to close at an all-time high, while the Dow Jones Industrial Average rose 1.5 per cent to breach the 30,000-point milestone for the first time.
This month’s equities rally paused, however, as analysts awaited a raft of announcements from central banks and governments, hoping for more detail on further fiscal or monetary stimulus to support the economic recovery from the pandemic.
UK chancellor Rishi Sunak will unveil his latest spending review on Wednesday, when he is expected to launch a £4.3bn plan to tackle the threat of mass unemployment.
The Office for Budget Responsibility will also release its forecasts, which are expected to show a £40bn hole in Britain’s public finances. The domestically-focused FTSE 250 index fell 1.3 per cent.
Analysts remain generally positive about the prospects for the large-cap FTSE 100. The blue-chip index, which has gained around 15 per cent so far this month, has a high concentration of businesses that would benefit from a global recovery, such as oil producers, global miners and banks.
“The FTSE offers a lot of exposure to sectors investors want to be in,” said Paul Leech, co-head of global equities at Barclays. “We are seeing stronger flows into the FTSE than we have for quite some time.”
Futures markets signalled a lacklustre start to trading on Wall Street, with the S&P 500 index set to open flat later on Wednesday.
Brent crude, the international oil benchmark, added to Tuesday’s gains, rising more than 1 per cent to $48.45 a barrel. That took its rise so far this month close to 30 per cent, putting it back at levels not seen since March.
The US Federal Reserve will on Wednesday release minutes from its latest policy meeting, with strategists hoping for clues as to its thinking on further monetary stimulus.
Outgoing Treasury secretary Steven Mnuchin this week clashed with the central bank by urging it to return $415bn of unused funds provided by Congress to backstop emergency lending facilities. The central bank replied that it would prefer to keep its “full suite” of funding options.
There was little sign of central banks changing course on monetary stimulus, said Peter Dixon, global economist at Commerzbank.
The Fed said in its previous set of meeting minutes that it would not increase interest rates until the US hit full employment and inflation had reached 2 per cent.
“Their previous announcements [on interest rate policy] have been pretty clear,” said Mr Dixon. “We would expect more along the lines of them saying they aren’t going to change anything anytime soon.”
The European Central Bank will publish minutes of its latest meeting on Thursday, where it could signal whether the region’s banks will be allowed to pay dividends again next year, a development that is being closely watched by income investors.