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European equities fall ahead of testimony from US policymakers

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European equities slipped as investors turned their focus to two days of Congressional hearings with top US economic policymakers on the response to coronavirus.

US Treasury secretary Janet Yellen and Federal Reserve chair Jay Powell will testify before the House financial services committee on Tuesday for quarterly Cares Act hearings, where they will discuss the role of fiscal and monetary support to the US economy.

They will be speaking on the first anniversary of the point at which their stimulus succeeded in ending the markets crisis sparked by the outbreak of coronavirus.

“It’s going to be more of the same,” said Fahad Kamal, chief investment officer at Kleinwort Hambros, Société Générale’s private banking and wealth management division. “I think the Fed is going to remain super accommodative.” 

Yellen said in prepared testimony ahead of the meeting that, with the passing of Joe Biden’s $1.9tn stimulus plan, she sees it as possible that the US will return to “full employment” in 2022.

Powell echoed those remarks in testimony the Fed released ahead of the hearing, saying “the recovery has progressed more quickly than generally expected and looks to be strengthening”.

Futures tracking the blue-chip S&P 500 fell 0.3 per cent in European trading, while those for the tech-heavy Nasdaq 100 dropped 0.2 per cent.

The yield on the US 10-year Treasury, which moves inversely to price, was little changed around 1.63 per cent, having peaked near 1.75 per cent last week.

“The Fed’s been pretty clear on where they want to be, I don’t think we’ll hear anything particularly new, we do expect inflation to increase, but it will fall back down again,” said Paul Flood, portfolio manager at Newton Investment Management. 

In Europe, the region-wide Stoxx 600 index fell 0.4 per cent in the morning session, while Germany’s Xetra Dax and the UK’s FTSE 100 dropped 0.5 per cent.

Investors have continued to monitor the coronavirus crisis in Europe, which has intensified in many countries. German lawmakers agreed to extend its months-long lockdown to April 18, following a surge in infections.

“Europe is having headwinds of a different kind,” said Kamal, noting that vaccination programmes in many countries were going at a “really poor” pace “especially when compared to the US and UK”.

He added that Europe was very likely to see growth in the second half of the year with the reopening of economies generating “procyclical tailwinds”.

Shares in British Airways owner IAG fell heavily for the third straight session after a surge in coronavirus cases in Europe increased the likelihood of further restrictions on Britons travelling abroad.

IAG’s shares fell 4.6 per cent in the first hour of London trading, taking their loss since last Thursday to 13 per cent. Shares in Tui dived 5.6 per cent, putting the package holiday provider on course for a 15 per cent loss of market value in the past three trading days.

Fines of up to £5,000 for anyone in England who travels abroad without a reasonable excuse have been included in new coronavirus legislation that extends until the end of June and will be voted on by MPs on Thursday. Scotland, Wales and Northern Ireland can then choose whether to follow suit under their own rules.

Oil prices fell on Tuesday. Brent crude, the international benchmark, dropped 1 per cent to $63.99 a barrel and West Texas Intermediate, the US benchmark, slipped by a similar measure to $60.92 a barrel.

In Asia, China’s CSI 300 and South Korea’s Kospi lost 1 per cent and Hong Kong’s Hang Seng fell 1.3 per cent.

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