Europe midday: Shares bounce back after bond market stabilises

European shares remained higher on Monday as the bond market sell off eased with yields falling, while investors also took heart from Covid vaccine rollouts, although inflationary fears persisted.

The pan-European Stoxx 600 index was up 1.54%, with all major regional bourses higher. London’s FTSE kept pace on the back of rising housebuilding shares.

“Those fears of inflation have certainly not gone away but attention has shifted back, perhaps temporarily, to the immediate positive drivers which could propel a strong economic rebound,” said Richard Hunter at interactive investor.

“More generally, the success so far of the vaccine rollouts and the pent-up consumer demand which has partly been due to enforced savings are preparing the ground for a spending spree later in the year.”

“In the US, the increasing likelihood of the President’s proposed stimulus package could initiate a strong road to recovery.”

CMC Markets analyst David Madden said the fear of a higher cost of living “is not having the same impact that it once had”.

“The Federal Reserve welcomes a certain rise in inflation but they will not be changing their policy because of movements in the bond market.”

Rising commodity prices helped to lift resource shares such as BP, Royal Dutch Shell, Anglo American and Rio Tinto.

Hopes that UK Finance Minister Rishi Sunak would unveil measures to buy homes buyers boosted house builders with Persimmon, Taylor Wimpey, Barratt, Vistry and Bellway all gaining.

With Sunak due to deliver his Budget on Wednesday, the usual round of leaks to the media began last week, with reports suggesting that government-guaranteed 95% mortgages would be one measure.

“House prices are already lofty so throwing more fuel on the fire – introducing 95% mortgages – could squeeze prices even higher. There is a risk the banking and construction sector will repeat the same mistakes that were made pre-2007,” said CMC’s David Madden.

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