SLIGHT RISE SIGHT FOR EUROPEAN STOCKS, POWELL CONFIRMED
by Laetitia Volga
PARIS (Reuters) – Major European stock markets are likely to edge higher at the open on Thursday in the wake of Wall Street after statements from Federal Reserve Chairman Jerome Powell allayed some investor fears about the pace of future rate hikes.
The first available indications point to an increase of 0.42% for the Paris CAC 40, 0.36% for the Dax in Frankfurt, 0.23% for the FTSE in London and 0.5% for the EuroStoxx 50.
Unsurprisingly, the Fed raised the Federal Funds Rate Target by three quarters of a point after its two-day meeting on Wednesday to curb rising prices.
The following comments from Jerome Powell gave some investors hope that the pace of rate hikes was slowing.
While saying that another unusually large hike at the September meeting might be appropriate, Jerome Powell added that that decision will depend on the next economic data and that some indicators are showing signs of slowing, suggesting that the rate hike so far is on the rise begins to bear fruit without leading to a recession in the United States.
“There are signs that we are closer to the end of this tightening cycle than the beginning. With interest rates now neutral, the Fed chair mentioned that at some point it will be appropriate to slow them down,” said Michael Feroli, chief economist at JPMorgan . “We are therefore confident of a 50 basis point rate hike in September, even if Powell left the door open at +0.75%.
The focus is now on US gross domestic product for the second quarter, which could be decisive for the Fed’s next decisions.
Reuters consensus expects growth of 0.5% after falling 1.6% in the January-March period, but the Atlanta Federal Reserve’s GDPNow forecast model calls for a 1.2% decline.
The market will also take note of the first estimate of German inflation in July.
THE FOLLOWING VALUES:
The results will liven up the rating at the start of the session in Europe, with investors reacting particularly to those of Safran, Orange, STMicroelectronics, Nestlé and Volkswagen.
ON WALL STREET
The New York Stock Exchange closed sharply higher on Wednesday after the Fed’s announcements: the Dow Jones index rose 1.37% to 32,197.59 points, the broader S&P 500 rose 2.62% to 4,023.61 points and the Nasdaq Composite climbed 4.06% to 12,032.42 points.
The Nasdaq posted its strongest gain since April 2020, while the S&P 500 posted a record close since June 8.
Major Wall Street indices were already in the green ahead of the Fed’s statement, driven by solid results from Microsoft (+6.7%) and Alphabet (+7.7%), which boosted investor confidence.
After the close, Meta shares fell 4.6% as Facebook’s parent company issued a gloomy forecast after it first reported quarterly revenue declines amid a looming global recession and heightened competitive pressures on its ad sales.
The Nasdaq is therefore down 0.47%, according to index futures, while the S&P 500 is down 0.26% and the Dow Jones is down 0.15%.
The Nikkei on the Tokyo Stock Exchange rose 0.23%, erasing part of the day’s gains as investors worried about quarterly results from Japanese companies.
“The index rose too much in early trade and that was just a reaction to Wall Street’s strong performance,” said Shigetoshi Kamada of Tachibana Securities. “Investors quickly realized that they could not be optimistic about the prospects for Japanese companies. Some results are good, but on closer inspection, the weak yen tends to be the only positive factor.”
In China, the large-cap CSI 300 gained 0.56% but the Hang Seng slipped 0.2% after the Hong Kong Monetary Authority hiked interest rates by 75 basis points.
The dollar index fell slightly (-0.14%) after falling 0.7% the previous day after comments from the Federal Reserve were deemed less hawkish than expected.
The euro is stable at $1.0202.
In the US bond market, the 10-year Treasury yield rose more than 6 basis points to 2.7958%, erasing losses recorded on Wednesday.
Oil continued yesterday’s gains, buoyed by renewed investor interest in risky assets and weekly US inventory figures from the Energy Information Administration (EIA), which showed a stronger-than-expected decline in crude oil inventories and a rebound in demand for gasoline.
Brent rose 0.7% to $107.37 a barrel and US light oil (West Texas Intermediate, WTI) rose 1.01% to $98.24.
(Written by Laetitia Volga, edited by Nicolas Delame)