PARIS (Reuters) – European stocks ended higher on Wednesday as investors positioned themselves for a rate cut by the Federal Reserve in September after a U.S. inflation gauge came in line with expectations.
In Paris, the CAC 40 rose 0.79% to 7,333.36 points, while the German Dax rose 0.38% and the British Footsie strengthened 0.56%.
The EuroStoxx 50 index ended the session up 0.61%, while the FTSEurofirst 300 gained 0.4% and the Stoxx 600 gained 0.43%.
CPI inflation rose by 0.2% over one month in July, a figure in line with expectations which reassures investors about the dynamics of prices across the Atlantic and raises hopes of an imminent rate cut by the Fed.
In detail, however, housing price inflation remains high and accelerated again in June, partly explaining the mixed reaction of risky assets. Rents rose by 0.5% over one month and the equivalent rent for owners by 0.4%.
Operators also estimate that the Fed will decide on a 25 basis point cut, 60% likely according to the money markets positioned last week for a more significant cut of 50 basis points.
The adjustment in the rate outlook helps limit the decline in yields and puts pressure on the dollar, whose rate has benefited from the large rate gap between the United States and the rest of the world over the past two years.
“These figures will reinforce expectations for a PCE inflation indicator for July of up 0.2% month-on-month, or even 0.1%, which will make a Fed rate cut certain given the slowdown in labor markets and the weakness in business surveys,” summarizes James Knightley, chief US economist at ING.
“The question will be the magnitude” of this decline, with the August jobs report being the last missing piece of the puzzle, the economist added.
A certain caution remains, moreover, before the publication on Thursday of a salvo of activity indicators, including the weekly unemployment figures, which will shed light on the state of the American labor markets, at a time when the latest employment indicators have raised fears of a recession across the Atlantic and triggered a massive sale of risky assets.
Philly Fed and Empire State activity indicators, as well as industrial production, will be released Thursday.
A WALL STREET
Wall Street is cautiously up in mid-session trading after inflation figures suggested a more moderate-than-expected cut in the Fed’s key rate in September. The technology sector is also under pressure from Alphabet, with the US Justice Department considering splitting up Google.
At the time of the European closing, trading on the New York Stock Exchange indicated a 0.4% increase for the Dow Jones, against 0.3% for the Standard & Poor’s 500 and 0.08% for the Nasdaq Composite.
VALUES
Valneva rose 5.3%, leading the SBF 120 for the second consecutive session after its first-half results were well received by investors.
Bavarian Nordic jumped more than 12.3% after the Danish biotech company said on Tuesday it had received an order from the European Emergency Preparedness and Response Authority (HERA) for its monkeypox vaccine.
Straumann rose 13.4% after the dental implant maker announced the sale of its DrSmile teeth aligner division and raised its full-year outlook.
RWE fell 5.5% as investors worried about a possible purchase of a US gas-fired power plant operator.
UBS gained 5.29% after reporting second-quarter net profit on Wednesday that was well above expectations.
Thyssenkrupp reported a third-quarter net loss on Wednesday, driven by higher-than-expected costs in its factory technology business, and fell 6.3 percent.
Hapag-Lloyd reported a 75% plunge in its first-half net profit on Wednesday, falling 4%.
Carlsberg raised its full-year organic growth outlook on Tuesday but reported weaker-than-expected second-quarter sales, sending shares down 4 percent.
RATE
Yields fell across the Atlantic after the inflation figures published on Wednesday in the United States, with operators positioning themselves for a cut in the Federal Reserve’s key rate in September.
At the time of the European close, the yield on the ten-year Treasury fell by 3.8 bp to 3.8163%, while the yield on the two-year note was stable at 3.935%.
The yield on the German ten-year bond is unchanged at 2.176%, that of the two-year rate is stable at 2.345%.
CHANGES
The dollar is down sharply against the euro and other currencies, with traders betting on a narrowing of the interest rate gap between the United States and the rest of the world in the short term.
The dollar fell 0.14% against a basket of benchmark currencies, the euro rose 0.33% to $1.1028, and the pound sterling lost 0.09% to $1.2845.
OIL
Crude oil is eroding after figures from the US Energy Information Administration showed that 1.4 million barrels were stored last week, while the market had expected a withdrawal of 2.2 million barrels.
Brent fell by 0.57% to $80.23 per barrel, while US light crude (West Texas Intermediate, WTI) weakened by 0.98% to $77.58.
(Written by Corentin Chappron, edited by Kate Entringer)
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