Stocks steady as markets bet on Bank of England massive rally

  • Market bets on a 50 basis point BoE hike
  • Fed official: 50 basis points increase in September ‘reasonable’
  • Oil bounces back from six-month low
  • Lufthansa returns to operating profit
  • Credit Agricole sees profits soaring

LONDON (Reuters) – Strong earnings at Credit Agricole and Lufthansa lifted shares on Thursday as tension over Nancy Pelosi’s visit to Taiwan eased and markets bet the Bank of England would raise interest rates by the most since 1995 to quell inflation.

The STOXX (.STOXX) index of leading European companies rose 0.33% after German airline Lufthansa (LHAG.DE) returned to operating profit, while France’s Credit Agricole joined the growing list of better-than-expected bank earnings. Read more

Shares in Hong Kong (.HSI) rose 2%, tracking broader gains in Asia (.China angered. Read more

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Oil prices rebounded from six-month lows, while the dollar was supported by US Federal Reserve officials resisting suggestions that they would slow the pace of rate hikes, with one saying a 50 basis point rate hike would be “reasonable”. Read more

After massive interest rate increases by the Federal Reserve and the European Central Bank to stem decades of rate hikes, investors expect the Bank of England to follow suit with a 50 basis point increase when it announces the outcome of its monetary policy meeting at 1100 GMT. Read more

The British Pound may struggle in the absence of the hawks’ surprise – especially as the UK economic outlook looks weak while US data provided some bullish surprises.

The British pound was trading at $1.2162, slightly higher on the day.

“People tend to be 50 basis points higher, and it’s probably a split decision. Then it really comes down to how we see the future going forward,” said Michael Hewson, chief markets analyst at CMC Markets.

“The British economy is in a recession and there is nothing they can do about it, and the BoE’s primary focus should be on pulling inflation from its current levels, and the front load just like the Fed does,” Hewson said.

A survey from the European Central Bank showed that consumers in the euro zone are preparing for a contraction in the economy and persistently high inflation. Read more

S&P 500 futures were unchanged ahead of the Wall Street open, with Friday’s non-farm payrolls being a major part of the data for the week.

Central bank policy rates

Earnings not reset yet

Casper Elmgren, head of equities at Amundi Asset Management, said the illusion that decades of high inflation would be temporary has now faded with rising fuel bills and difficulties finding employees.

“The big picture here is that it will take a lot to restore price stability. The danger here is that we are underestimating the strength of the force that we are dealing with,” he said.

The second-quarter earnings season currently underway has not provided a major “reset” for what Elmgreen sees as still a very high earnings outlook for 2022 overall given the slowdown in the economy.

“I think this could come in the third or fourth quarter as we start to see a bigger impact on demand,” Al-Magren said.

Wednesday’s ISM survey showed that the US service industry unexpectedly rebounded in July, leading to bond selling and gains in US stocks and the dollar, with the Nasdaq (.IXIC) index rising 2.5% to a three-month high. Read more

Fed officials delivered a hawkish chorus this week, hitting the short end of the yield curve. Two-year Treasury yields were trading at 3.1040%, while 10-year Treasury yields were trading at 2.7318%, both slightly weaker.

The dollar halted its decline that began in mid-July, supported by rising expectations and escalating political tension.

Fed fund futures remain priced to cut interest rates by the middle of next year and the inversion of the US yield curve, with 10-year yields below 2-year yields, suggests investors believe the upward trajectory will hurt growth.

“I think the market will continue to be volatile,” said David Ratliff, head of banking and capital markets for Asia Pacific at Wells Fargo in Hong Kong. “People are starting to read the current round and pace of Fed tightening.”

The dollar index was trading at 106.30, down 0.169%. The euro was bought by the European energy crisis at $1.0185.

Brent crude futures slipped slightly at $96.75 a barrel as supply concerns led to a rebound from multi-month lows on Wednesday after US data indicated weak demand for fuel. Read more

And the price of spot gold rose 0.5% to 1773 dollars an ounce.

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Additional reporting by Tom Westbrook in Singapore and Kevin Buckland. Editing by Kim Coogle and Mark Potter

Our Standards: Thomson Reuters Trust Principles.

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