European stocks were higher on Wednesday, picking up their cue from a rally in the Asian market, after comments from the Bank of Japan and the US Federal Reserve painted positive pictures of their economies.
The Bank of Japan was more upbeat about the country's economy than it has been in the last eight years, boosting investor confidence that a recent rise in coronavirus infections and the Omicron variant would not impact the country's recovery from the pandemic.
China’s consumer price index was up 1.5% in December compared with a year ago. Factory prices climbed 10.3% year-on-year, slowing from the 12.9% rise in November.
Meanwhile in the US, Fed chair Jerome Powell told the Senate committee considering his renomination that the American economy is growing rapidly, and the central bank will do everything in its power to control inflation before it becomes deep-rooted.
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He did not provide any new details on interest rates, and said he believed the economy could handle tighter monetary policy.
"European markets had been on tenterhooks since the start of the week ahead of key US data. Comments from Federal Reserve chairman Jerome Powell on interest rate hikes, have helped investors heave a sigh of relief, as Powell’s promises to tackle inflation along with economic expansion have calmed nerves," Kunal Sawhney, CEO at Kalkine Group told Yahoo Finance UK.
The US the consumer price index – rose 0.5% last month compared with November, and 7% compared with December 2020. It was the seventh consecutive month in which inflation has topped 5%.
"Investors should keep in mind that stock markets are likely to be volatile over the next few days, mainly because of the inflation data scheduled to be released", said chief market analyst at AvaTrade, Naeem Aslam.
He said inflation is a major factor considered by the Fed in deciding its monetary policy. Last year, consumer prices surged rapidly owing to supply chain bottlenecks and a steep recovery in demand. To keep consumer prices from rising any further, hawks had to seize control of the situation and double the rate of tapering. The inflation reading to be released on Wednesday is also expected to come in higher, supporting the Fed’s current strategy.
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