European stocks look set to open on a cautious note Tuesday as investors fret over high valuations and the likelihood of inflationary pressures.
The downside, if any, may be limited by encouraging corporate earnings, falling coronavirus infections, progress in distributing vaccines and the possibility of government stimulus.
Investors are pinning hopes that a $1.9 trillion Covid-19 aid package will be passed by U.S. lawmakers as soon as this month. That includes a rise in the federally required minimum wage and cash aid to households.
Richmond Federal Reserve President Thomas Barkin downplayed concerns the spending might fuel inflation.
Barkin told The Financial Times newspaper in an interview that he expected "short-term price volatility" but stressed he saw deflationary as well as inflationary risks on the horizon.
On the Covid-19 front, British Prime Minister Boris Johnson said he was "very confident" in the vaccines the U.K. was rolling out, adding they were "effective in delivering a high degree of protection against serious illness and death, which is the most important thing."
Asian markets are trading mixed, with Chinese stocks rising sharply as investors cheered Beijing's latest reform measures for the stock market.
The dollar hit its lowest level in a week, helping push gold and oil prices higher.
Oil prices hit 13-month highs on the back of supply cuts by major producers and optimism over fuel demand recovery.
Bitcoin hit a fresh record above $47,000 after Tesla Inc.'s announcement of a $1.5 billion investment in the largest cryptocurrency.
Foreign trade data from Germany is due later in the session, headlining a light day for the European economic news.
Economists expect exports to fall 1 percent month-on-month, reversing a 2.2 percent rise in November. Imports are seen easing 1.1 percent after rising 4.7 percent a month ago.
Overnight, U.S. stocks hit fresh record closing highs as investors held out hopes of a robust stimulus package. The Dow Jones Industrial Average rose 0.8 percent, the tech-heavy Nasdaq Composite gained 1 percent and the S&P 500 added 0.7 percent.
European stocks also advanced on Monday, with sentiment buoyed by slowing coronavirus infections globally and the prospect of additional U.S. stimulus.
The pan European Stoxx 600 edged up 0.3 percent. The German DAX finished marginally higher, while France's CAC 40 index and the U.K.'s FTSE 100 both rose about half a percent.
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