LONDON – Stocks edged higher on Wednesday, but gains were capped by questions over how far real bond yields will rise as investors sifted through disappointing Netflix earnings and the conflict continued in Ukraine.
The STOXX index of 600 European companies gained 0.4 percent to 458.17 points. The MSCI all country stock index was 0.2 percent firmer.
Investors kept a wary eye on the 10-year Treasury Inflation-Protected Securities (TIPS) , whose yields briefly broke above negative territory on Tuesday for the first time since March 2020.
A rise in real yields poses a fresh headwind for risky assets such as stocks, especially big tech firms which report earnings nex week, now more closely scrutinised after Netflix shares sank on Tuesday evening after news it was losing subscribers.
Tech-heavy Nasdaq futures were down 0.6 percent, with S&P500 futures shedding 0.3 percent
"You are going to have to see real yields in much more positive territory before they make stock markets less attractive," said Michael Hewson, chief market analyst at CMC Markets.
"The bigger question the markets are wrestling with at the moment is has inflation peaked? If inflation has peaked, then maybe it's a good time to buy bonds again, which is why we are seeing so much uncertainty as to the future direction of the stock markets," Hewson said.
The dollar climbed to a fresh two-decade peak to the yen, buoyed as the Bank of Japan stepped into the market again to defend its ultra low interest rate policy.
Data is beginning to emerge from the International Monetary Fund this week on how much the two-month old conflict in Ukraine is hitting the global economy.
The US Federal Reserve issues its "Beige Book" of economic conditions from late February to early April on Wednesday. "We expect the pace of economic activity eased slightly to a modest pace," UniCredit analysts said in a note.
In Europe, German producer prices hit a record high amid the conflict in Ukraine.
In an election which has rattled French bonds, President Emmanuel Macron and far-right candidate Marine Le Pen will face each other in a televised debate on Wednesday evening. Macron, however, appears to be pulling ahead of Le Pen in the polls ahead of Sunday's final round in the election.
Asia shares rise
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent, its first positive session in a week.
Japan's Nikkei rose 0.8 percent, like other markets in the region tracking Tuesday's gains on Wall Street where the three main benchmarks had their best days in over a month, helped by several strong earnings results. The Nasdaq closed up 2.2 percent.
The yield on a highly-traded contract of China's 10-year government bond fell below US 10-year Treasury yield for the first time since 2010 on earlier this month, and Chinese 10 year yields were last around 2.85 percent.
Benchmark 10-year Treasury yields were within a whisker of 3 percent on Wednesday – though were little changed on the day.
Yield differentials are also a factor for Japan, where the central bank on Wednesday offered to buy an unlimited amount of 10-year Japanese government bonds (JGB) at 0.25 percent, in its third move since February to defend its yield target.
This yield curve control has sent the yen to 20-year lows against the dollar, but the dollar retreated 0.2 percent on the yen on Wednesday amid some nerves that intervention – verbal or otherwise – from Japanese authorities could drive a bounce.
Oil prices rebounded from sharp losses in the previous session. Brent crude futures rose 1.2 percent to $108.55 a barrel.
Spot gold fell 0.4 percent to its lowest in a week dragged down by higher yields.