Stocks stable as markets bet on the Bank of England’s steep rise

  • The market is betting on the 50 basis point increase of the Bank of England
  • Fed official: “reasonable” increase of 50 basis points in September
  • Oil rebounds from the six-month low
  • Lufthansa returns to operating profit
  • Credit Agricole sees profits soar

LONDON, Aug 4 (Reuters) – Strong gains from Credit Agricole and Lufthansa lifted stocks Thursday as tension over Nancy Pelosi’s visit to Taiwan eased and markets bet Bank of England will raise interest rates. highest amount since 1995 to suppress inflation.

The STOXX (.STOXX) index of major European companies gained 0.33% after German airline Lufthansa (LHAG.DE) returned to operating profit, while French bank Credit Agricole joined the growing list better-than-expected profits from banks. Read more

Shares in Hong Kong (.HSI) were up 2%, posting larger gains in Asia (.MIAP00000PUS), taking some of the losses suffered after Sino-American frictions exploded during the president’s visit to Taipei this week. House of Representatives Pelosi, which angered China. Read more

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Oil prices rebounded from six-month lows as the dollar was supported by U.S. Federal Reserve officials who rejected suggestions that it will slow the pace of interest rate hikes, with one saying a 50-point hike basis would be “reasonable”. Read more

After large interest rate hikes by the Fed and the European Central Bank to halt price hikes for decades, investors expect the Bank of England to follow suit with a 50 basis point hike when it announces l outcome of its monetary policy meeting at 1100 GMT. Read more

The pound could struggle in the absence of a hawkish surprise, especially as the UK economic outlook looks weak as US data offered some upside surprises.

The pound was trading at $ 1.2162, slightly up from the day.

“People are leaning towards a 50 basis point hike, probably a split decision. So it’s really a question of how to see the prospects for the future,” said Michael Hewson, chief market analyst at CMC Markets.

“The UK economy is going into recession and there is nothing they can do about it and the Bank of England’s main objective should be to reduce inflation from its current levels, and anticipate how it is doing. the Fed, ”Hewson said.

A survey by the European Central Bank showed that consumers in the euro area are preparing for the economic contraction and continued high inflation. Read more

S&P 500 futures changed little before Wall Street opened, with Friday’s non-farm payrolls a key figure for the week.

Central bank reference rates

NO EARNINGS YET RESET

Kasper Elmgreen, Head of Equities at Asset Manager Amundi, said the illusion that decades of high inflation would have been transient has now permanently disappeared as fuel bills soar and companies struggle to find staff.

“The big picture here is that it will take a long time to restore price stability. The risk here is that we underestimate the strength we are dealing with,” Elmgreen said.

The ongoing second quarter earnings season hasn’t provided a major “reset” to what Elmgreen sees as earnings expectations that are still too high for 2022 overall as the economy is slowing.

“I think it could come in the third or fourth quarter when we start to see a greater impact on demand,” Elmgreen said.

An ISM poll on Wednesday showed that the US services sector rose unexpectedly in July, prompting a bond sale and rally for US equities and the dollar, with the Nasdaq (.IXIC) up 2.5% to a maximum of three months. Read more

Fed officials provided a hawkish refrain this week, hitting the short end of the yield curve. Two-year Treasury yields traded at 3.1040%, while benchmark 10-year yields traded at 2.7318%, both of which were slightly weaker.

The dollar halted a decline that began in mid-July, with support from both upside expectations and heightened political tension.

Fed fund futures remain priced for ongoing rate cuts by mid-next year and the US yield curve reversal, with 10-year yields below two-year yields, suggests investors think the path upside will damage growth.

“I think the market will remain volatile,” said David Ratliff, head of banking and capital markets for Asia Pacific at Wells Fargo in Hong Kong. “People are starting to read the current round and the pace of Fed tightening.”

The dollar index was trading at 106.30, down 0.169%. A euro weighed by the energy crisis in Europe bought $ 1.0185.

Brent crude futures were slightly weaker at $ 96.75 a barrel as supply concerns triggered a rebound from multi-month lows Wednesday after US data signaled weak fuel demand. Read more

Spot gold was up 0.5% to $ 1,773 an ounce.

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Reporting by Tom Westbrook in Singapore and Kevin Buckland; Editing by Kim Coghill and Mark Potter

Our Standards: Thomson Reuters Trust Principles.

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