Stocks rise and interest rates fall after US inflation
EUROPEAN STOCK MARKETS END AT
by Laetitia Volga
PARIS (Reuters) – European stocks ended in the green on Wednesday as Wall Street rose as weaker-than-expected US inflation data eased fears of a big rate hike by the Federal Reserve during its next September meeting.
In Paris, the CAC 40 increased by 0.52% to 6,523.44 points. Britain’s Footsie rose 0.25% and Germany’s Dax rose 1.23%.
The EuroStoxx 50 Index was up 0.91%, the FTSEurofirst 300 was up 0.68% and the Stoxx 600 was up 0.89%.
At the close, Wall Street in Europe was in a strong uptrend with the Dow Jones up 1.54%, the Standard & Poor’s 500 up 1.94% and the Nasdaq Composite up 2.58%.
Consumer prices (CPI) in the United States were flat in July, showing an 8.5% yoy increase, while the Reuters consensus expected an increase of 0.2% mom and 8.7% yoy.
Fed funds rate futures now reflect the likelihood that the US Federal Reserve will raise the Fed funds rate target by 50 basis points (between 2.75% and 3%) in September, no more than 75 basis points as before the inflation numbers were released estimated .
The Fed’s fight against runaway inflation is far from over, however, and officials at the institution may hesitate to slow the pace and magnitude of monetary tightening, some strategists warn.
“Overall, prices remain too high,” wrote Rubeela Farooq of High Frequency Economics. “Inflation data, coupled with employment and wage growth, point to another significant rate hike in September.”
Chicago Fed President Charles Evans stressed that inflation remains at “unacceptable” levels and that the Fed must continue its policy tightening to likely end the “Fed Funds” rate in the 3.25 area % to bring 3.5% of the year.
In equity markets, defensive sectors were among the biggest decliners, with healthcare falling 0.88% and utilities down 0.51%.
In company news, Amsterdam retailer Ahold Delhaize rose 7.57% after it again raised its full-year earnings per share forecast.
US inflation data translated into lower bond yields as expectations of a significant rate hike by the Fed in September faded.
The 10-year US Treasury yield hit a low of 2.674% before retracing about 2.76%, down three basis points.
The European market followed suit, with Germany’s 10-year yield falling as much as 0.837%, its lowest since Aug. 5, before erasing losses.
According to data from Refinitiv, money markets are still pricing in a 100% chance of a 50 basis point interest rate hike by the European Central Bank in September, but investors are now estimating the rate hike at 106 basis points by December. compared to 113 bps before inflation was released in the United States.
“Inflationary pressures between the US and the eurozone are so different that short-term expectations for the ECB will not change significantly,” said Peter McCallum, strategist at Mizuho.
The dollar falls 1.34% against a basket of benchmarks (+0.02%) on US inflation, allowing the euro to hit a five-week high against the green note at 1.0331.
Sterling fell to its lowest level against the euro since July 26 during the session after Bloomberg agency reported that the UK government is planning power outages to industry and homes in January in the event of a very cold winter and gas shortages.
Oil prices are stabilizing after falling on the back of a resumption of crude oil supplies via the Druzhba pipeline, which connects Russia with several central European countries, and the US Energy Information Agency’s announcement that crude stocks in the United States rose more-than-expected last week .
Brent is unchanged at $96.3 a barrel and US light oil (West Texas Intermediate, WTI) is trading at $90.67.
(Written by Laetitia Volga, edited by Matthieu Protard)