by Claude Chendjou
PARIS (Reuters) – The main European stock markets are expected to have small variations on Wednesday at the opening the day after a session in the red marked by concerns about the Chinese economy, the trend likely to remain cautious due to questions on the trajectory of interest rates pending the hearing of Jerome Powell, the chairman of the American Federal Reserve (Fed), before Congress.
Index futures suggest a decline of 0.11% for the CAC 40 in Paris. The Dax in Frankfurt is expected to edge up 0.02%, while the FTSE 100 in London is expected down 0.24% and the EuroStoxx 50 stable.
Main meeting of the week, investors will follow this Wednesday at 2:00 p.m. GMT the hearing of Jerome Powell before the Financial Affairs Committee of the House of Representatives before another testimony Thursday before a Senate committee, a week after the decision of the central bank to take a break from raising interest rates before a resumption expected in July.
“The question is whether the two additional anticipated rate hikes are a true data-driven base case or a pessimistic assumption in an attempt to avoid a premature easing of financial conditions,” said Tapas Strickland, an economist at NAB.
Traders estimate a 78% chance of a 25 basis point hike in the cost of credit next month in the United States and a peak in fed funds rates at 5.5%-5.75%, while that their decline is excluded for this year.
Still on the monetary chapter, the Bank of England (BoE) is due to make its decisions on Thursday while inflation statistics published on Wednesday show that consumer price growth remained unchanged at 8.7% over one year in May in the UK. The Reuters consensus was for the CPI to decelerate to 8.4%.
In China, the central bank (PCB) cut its one-year and five-year prime lending rates by ten basis points on Tuesday in a bid to provide further support to its economy, but observers expected a deeper cut for the five-year rate.
AT WALL STREET
The New York Stock Exchange ended down on Tuesday on profit taking, the Dow Jones index yielding 0.72% to 34,053.87 points, the Standard & Poor’s 500, wider, 0.47% to 4,388.71 points and the Nasdaq Composite (0.16% to 13,667.29 points.
Closed on Monday, the American markets have also integrated the “hawkish” comments of two Fed governors, made on Friday afternoon, which imply a more marked slowdown in the American economy.
“The equity markets seem to be positioned on a scenario of a near peak rate, a disappearance of inflation and a recession”, estimate the strategists of Societe Generale, referring to the American markets.
IN ASIA
At the Tokyo Stock Exchange, the Nikkei index ended on a gain of 0.56% to 33,575.14 points and the Topix, broader, took 0.49% to 2,295.01 points.
In China, the Shanghai SSE Composite fell 0.81% and the CSI 300 lost 1%, still affected by disappointment over economic stimulus measures.
The MSCI index comprising stocks from Asia and the Pacific (excluding Japan) lost -0.8%.
EXCHANGES/RATES
The dollar was stable (+0.11%) on Wednesday against a basket of reference currencies after having benefited the day before from its status as a safe haven asset.
The euro is trading at 1.0909 dollars (-0.06%) and the pound sterling at 1.2761 dollars.
The yen is trading at 141.93 to the dollar as minutes from the Bank of Japan’s (BoJ) latest meeting show its board of governors agreed to keep interest rates ultra-low, but one member said he might consider a review of the Yield Curve Control (YCC) policy.
The yield on ten-year US Treasury bonds rebounded slightly, three one basis points, to 3.7557%, after a sharp drop the day before linked to fears of a recession in the United States.
That of the ten-year German Bund rose by 4.2 points to 2.447%.
OIL
The oil market, supported in part by statistics from the American Petroleum Institute and the Energy Information Administration which should show a drop in crude inventories last week in the United States, rebounded slightly after two consecutive sessions in the red.
Brent gained 0.26% to $76.10 a barrel and US light crude (West Texas Intermediate, WTI) 0.34% to $71.43.
NO MAJOR ECONOMIC INDICATOR ON TODAY’S AGENDA
(Written by Claude Chendjou, edited by Tangi Salaün)
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