by Laetitia Volga
PARIS (Reuters) – European stock markets closed higher on Wednesday as investors hoped that slowing US inflation would prompt the Federal Reserve to stop raising interest rates soon.
In Paris, the CAC 40 gained 1.57% to 7,333.01 points. The British Footsie took 1.83% and the German Dax won 1.47%.
The EuroStoxx 50 index rose by 1.72%, the FTSEurofirst 300 by 1.44% and the Stoxx 600 by 1.51%.
The consumer price index in the United States increased only very slightly in June (+0.2%) and recorded its weakest annual increase since March 2021 (+3%). Core inflation also fell, to 0.2% over one month – its lowest rise since August 2021 – and to 4.8% over one year while the Reuters consensus gave them at 0.3%. and 5.0% respectively.
“The easing of inflationary pressures in June should not prevent the Fed from raising rates by 25 basis points in July, as has been suggested in recent weeks,” said Edoardo Campanella, economist at UniCredit.
“The statistic reinforces our view that the Fed is unlikely to raise interest rates after the summer and will begin cutting them in early 2024.”
Rate futures still show traders overwhelmingly expect the fed funds rate target to rise to 5.25%-5.5% this month and a 25% chance of another rise by the end of the year, compared to around 35% before the statistic.
On Wall Street, technology stocks, sensitive to rate expectations, are on the rise, which allows the Nasdaq (+0.84%) to climb to its highest level since April 2022. Ditto for the S&P-500, in increase of 0.75%.
EXCHANGES/RATES
Inflation figures heavily penalize the dollar, down 1.1% against a basket of benchmark currencies, the lowest for nearly 15 months.
Government bonds, on the contrary, are in demand, leading to a drop in their yields. That of ten-year Treasuries fell by 13 basis points to 3.8554% and that of two-year securities by 17 points to 4.723%.
The ten-year Bund yield ended the session at 2.549% after opening at 2.636%.
VALUES
Buoyed by the announcement of success in the Bank of England’s stress tests, the major British banks advanced. HSBC, Lloyds and Barclays gained 2.48% to 3.30% while Virgin Money jumped 11.47%. Thales won 3.01%, the defense group having announced that it had started negotiations to buy Cobham Aerospace Communications for 1.1 billion dollars (997.19 million euros).
Casino climbed 10.75% as Les Echos reported that billionaires looking to save the retailer are expected to raise their bids soon.
OIL
Brent gained 0.48% to 79.78 dollars a barrel and US light crude (West Texas Intermediate, WTI) 0.84% to 75.46 dollars.
(Laetitia Volga, edited by)
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