by Diana Mandia

(Reuters) – Wall Street is expected to fall on Wednesday and European stock markets fall mid-session, with the European Central Bank’s (ECB) inflation outlook casting a chill ahead of Thursday’s crucial decision on rates and ahead of the publication of consumer prices in the United States scheduled for later today.

New York index futures signal Wall Street opening down 0.17% for the Dow Jones, 0.17% for the Standard & Poor’s-500 and 0.22% for the Nasdaq.

In Paris, the CAC 40 lost 0.78% to 7,196.18 around 10:51 GMT. In Frankfurt, the Dax lost 0.88% and in London, the FTSE fell by 0.35%.

The pan-European FTSEurofirst 300 index is down 0.89%, the EuroStoxx 50 in the euro zone is down 0.96% and the Stoxx 600 is down 0.88%.

Concerns about a new increase in interest rates on Thursday by the European Central Bank (ECB), which would be the tenth in a row, increased on Wednesday as Frankfurt expects, according to a source, that inflation in the zone euro remains above 3% next year, well beyond the 2% objective set by the monetary institution.

While the ECB began a meeting on Wednesday which should culminate in a decision on rates on Thursday, quarterly inflation forecasts lean in favor of a further increase in the cost of credit and investors are now counting 70% on an increase in rate at the end of the meeting.

Inflationary pressures have further intensified with rising oil prices in recent weeks, driven by supply concerns, which deepened on Wednesday as the International Energy Agency (IEA) warned that the extension of voluntary production cuts would lead to a significant deficit on the market during the fourth quarter.

At the same time, fears about the impact of a possible rate hike on the economy remain: investors learned on Wednesday that industrial production in the euro zone fell much more than expected in July, confirming the revision to the reduction by the European Commission of growth forecasts for this year.

Outside the euro zone, the British economy contracted sharply in July, official data showed on Wednesday, as the Bank of England (BoE) is due to make a decision on interest rates at its meeting from September 22.

Caution is also required as the publication of US inflation figures at 12:30 GMT approaches, which could influence the monetary policy decisions of the Federal Reserve (Fed) next week.

According to economists polled by Reuters, the Fed will leave federal funds rates unchanged in September and will likely wait until April-June 2024, or even later, to lower the cost of credit.

VALUES IN EUROPE

French Renault and German Volkswagen are up 1.89% and 0.29% respectively following the announcement of the opening by the European Commission of an investigation into subsidies granted by China to its manufacturers of electric vehicles, which allow them to cut prices on the European market.

In Madrid, Inditex, the owner of the fashion brand Zara, fell 3.5%, the group’s warning on currency effects taking precedence over the 40% jump in half-year profit. The European distribution sector lost 2.05%.

In Paris, Alstom (-5%) is at the bottom of the CAC 40 index, Barclays having started monitoring the value with a recommendation to “underweight”

RATE

Eurozone bond yields rise on Wednesday after Reuters reported that the ECB expects inflation above 3% next year, raising the likelihood of another rate hike on Thursday.

The German ten-year yield thus gained more than 3 bp to 2.68%, and that of the two-year rate increased by more than 4 points to 3.16%.

The yield on the Italian 10-year bond is at its highest level since mid-March, at 4.475%, up almost 7 basis points (bps).

The American bond markets are also progressing: the ten-year rate gains around 4 basis points to 4.30%, and the two-year rate gains around 3 points to 5.03%.

CHANGES

While waiting for American inflation figures, the dollar rose slightly (+0.06%) against a basket of reference currencies, while the euro lost 0.18% to 1.0733 dollars.

The pound sterling fell against the greenback after the publication of British GDP, to $1.246.

OIL

The oil market is at a nearly ten-month high ahead of the release of US inflation data as investors try to sort through disruptions to Libyan production, OPEC+ supply cuts and unfavorable developments in the global economy.

Brent rose 0.53% to $92.55 per barrel and American light crude (West Texas Intermediate, WTI) rose 0.57% to $89.35 CLc1.

(Written by Diana Mandiá, edited by Blandine Hénault)

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