European stocks were mixed on Thursday but investors remain cautious following the Federal Reserve's meeting minutes.

Investors hoping for any indication that Fed Chairman Jerome Powell and colleagues may be a touch more dovish were disappointed.

Policy makers agreed that they needed to keep raising interest rates enough to lower inflation, but signaled greater caution with the pace of coming increases.

"The best approach is for the FOMC to remain on message with its forecast until that forecast changes. Failure to do so allows the market to run wild with its own imagination. The central bank has spent the past three weeks trying to reel the market back from the dovish pivot speculation," said Mike O'Rourke, chief market strategist at Jones Trading.

These factors continued to reverberate on Thursday, with Norway's central bank giving the narrative an extra shove by raising rates by 50 basis points to 1.75%.

Data released Thursday showed the U.K.'s annual rate of inflation moved into double digits in July and is set to rise even higher by the end of the year, heaping greater pressure on stretched household budgets and threatening a lengthy economic contraction.

These have "poured cold water on the prospect that central banks were about to let up on hiking rates," Deutsche Bank analyst Henry Allen said. This sentiment is pushing investors away from "risk assets" once again, he said.

Economic Insight:

Norges Bank raised the key rate by 50 basis points on the back of a higher core inflation than expected, a decision which will likely be repeated next month, Nordea said.

Norges Bank had signaled in June that it would raise rates at Thursday's meeting by 25bp, but the larger hike was warranted after a stronger rise in core inflation over the summer, it said. For markets, the move came as no surprise, with rate markets expecting 50bp well beforehand.

"We believe that Norges Bank will deliver another 50bp rate hike in September, before resuming with 25bp hikes from November onwards," it said. Nordea sees Norway's key rate peaking at around 3.25%.


Money markets are gearing up expectations for European Central Bank interest-rate rises after news of U.K. inflation hitting a four-decade high of 10.1% in July and after ECB Executive Board member Isabel Schnabel hinted at further rate rises in an interview with Reuters.

In July the ECB opted for a large 50 basis-point interest-rate rise in light of the inflation outlook and "at the moment I do not think this outlook has changed fundamentally," she said. Markets now price in 127bps of interest rate rises until year-end, versus some 110bps priced Wednesday, according to Refinitiv.

The ECB is "unlikely to pivot for now" and a 50 basis-point rate rise in September "remains the most likely outcome," Pictet Wealth Management said.

U.S. Markets:

U.S. stock futures inched lower as investors awaited economic data including jobless claims and home-sales figures, plus more major earnings.

Following the release of the Fed's minutes on Wednesday, investor concerns about central bank rate hikes have resurfaced.

The S&P 500, the Wall Street benchmark, by midweek had rallied more than 17% off its mid-June low as investors became more optimistic that a deceleration in consumer price rises could allow the Fed, and its peers worldwide, to be less aggressive in hiking borrowing costs.

However, the bounce saw stock indices looking overbought, according to momentum gauges like the S&P 500's 14-day relative strength index, and that left them vulnerable to disappointment.

Sure enough, resurgent fretting over central bank monetary policy tightening is being used as an excuse for profit taking.

"After a very strong run for risk assets thanks to a narrative that we might have seen 'peak inflation', Wednesday put a stop to that as multiple headlines came through that poured cold water on the prospect that central banks were about to let up on hiking rates," said Henry Allen, macro strategist at Deutsche Bank.

Data due for release on Thursday include the initial unemployment claims at 8.30 a.m. Eastern and existing home sales at 10 a.m. Eastern.

Nathan Sheets, global chief economist at Citi, said that even though financial markets had become more positive of late, "we remain concerned about the underlying fundamentals of the global economy. Our sense is that economic performance is likely to be plagued by high inflation, slowing real GDP growth, and rapidly tightening monetary policy for some time to come."

Estee Lauder and Kohl's are scheduled to release earnings before the opening bell while Applied Materials is set to report results after markets close.


Fed minutes from Wednesday showed policy makers look content with the dollar's strength as they felt this helped suppress import prices and would therefore help bring down inflation, ING said.

"The Fed seems to welcome dollar strength and there were no linkages of dollar strength depressing any sectors in the U.S. economy," the bank said.

The Fed attributed the dollar's recent rise, especially against the euro, to interest-rate differentials and ING expects those differentials to widen further into year-end, keeping EUR/USD at levels between 1.00 and 1.02.


The Norwegian krone rose after the Norges Bank raised interest rates by 50 basis points to 1.75% in a decision that many had expected, although some analysts had noted a possibility of a smaller 25 basis-point increase.

The Norges Bank said interest rates would likely rise further in September as inflation was "considerably higher than projected" while unemployment was very low and had fallen a little more than expected.

A markedly higher policy rate is needed to bring inflation back to target, Governor Ida Wolden Bache said in the accompanying press release. EUR/NOK falls 0.2% to 9.8564, down from 9.8831 before the decision.


The U.K.'s four-decade-high 10.1% annual inflation for July caused a repricing of market expectations of interest-rate increases by the Bank of England, and the cross-read for eurozone government bonds is that the market discounts similar upward pressure for coming HICP releases, Commerzbank said.

"10y Bunds [Bund yields] took out the 1% level effortlessly amid a flattening curve, before weakening equities helped Bunds to stabilize later in the session," it said, referring to Wednesday's moves. Subdued summer liquidity doesn't help and might remain an obstacle in Thursday's trading as well, Commerzbank said.


The U.K. gilt curve has room to flatten further with the peak in inflation still to come and recession fears further on the rise, ING said. Core U.K. inflation might peak soon but ING expects the headline rate to hover around 12% from October, the rates strategists said after annual inflation hit a four-decade high of 10.1% in July.

In a market featuring widening bid-offer spreads, the Bank of England intends to embark on active quantitative tightening soon, the Dutch bank said.

"It will test market functioning as private investors will effectively have to absorb significantly higher amounts of government debt going forward," ING said. This factor muddies their call for a flatter curve, it added.


Oil prices rose in early trading, with declining inventories in the U.S. helping to improve sentiment. "U.S. petroleum inventories including SPR declined 12.6 million barrels and crude exports surged to all-time-high levels," DNB Markets said--helping to improve sentiment on tight supply.

"Amid oil demand worries we highlight that implied U.S. oil demand increased sharply, up by 1.75 million barrels a day week on week to 21.22 million barrels a day, the highest level since February," it added.


Metals prices fell in early trading, with central-bank hawkishness--particularly from the Fed--damping the sentiment that peak inflation is over.

Rising inflation rates in the U.K. and hawkish notes from the Fed among others "poured cold water on the prospect that central banks were about to let up on hiking rates," Deutsche Bank said.

This sentiment is pushing investors away from "risk assets" once again, the bank said.




U.K. Housing Market Sentiment Still Positive Despite Seasonal Normalization

The U.K. housing market appears to be have largely stabilized in July, with a return to a seasonally driven marketplace and housing stock at the highest level in a year, according to new data from OnTheMarket PLC.

Measuring more than 120,000 consumer responses, the property sentiment index found around 75% of active buyers and 80% of sellers were confident they would carry out a property transaction within the next three months, in line with figures reported in May and June, the online property portal said.


Norway Central Bank Lifts Rate to 1.75%, Sees Next Hike in September

Norway's central bank raised its key policy rate to 1.75% from 1.25% on Thursday, and said it expects to raise the rate further in September.

Analysts polled by The Wall Street Journal had expected the central bank to raise its key rate to 1.75%, despite guidance from the central bank at its last meeting in June suggesting it would increase to 1.50%.


Oil Giants Must Face Climate-Liability Suits in States, Appeals Court Rules

A federal appeals court ruled that lawsuits by Delaware and Hoboken, N.J., seeking compensation from oil companies for the impacts of climate change should be decided in state, not federal courts.

The decision Wednesday is the latest procedural victory by state and municipal governments, which have sought to bring climate-liability cases against companies such as Exxon Mobil Corp., Chevron Corp. and Shell PLC under state laws, after similar earlier efforts under federal laws proved unsuccessful.


Iran Renews Demands for U.S. Guarantees in Nuclear Deal Talks

BERLIN-Iranian demands for guarantees from the U.S. have once again stalled efforts to revive a 2015 nuclear pact, leaving Washington and European capitals unsure if a deal is possible.

Tehran on Monday sent a response to the European Union, which chairs the nuclear talks, neither accepting nor rejecting an EU draft text of a deal but raising several issues Iran wanted incorporated into the agreement. The EU had said its draft was the "final text" of a possible deal when it sent it out, announcing that negotiations were over.


U.K. Government to Pay Thousands of People Who Were Infected by Tainted Blood

The United Kingdom will pay thousands of people who were infected with hepatitis C or HIV through contaminated blood about $120,000 each, the government said Wednesday.

The government payments follow recommendations from a yearslong inquiry examining the tainted blood scandal in the U.K. in the 1970s and 1980s. Thousands of people with hemophilia and other blood disorders were infected with HIV and hepatitis C through blood treatments from the National Health Service. At least 2,400 people died, according to a 2017 estimate from the government.


Germany's Uniper Reports Heavy Loss Over Russian Gas-Supply Cuts

BERLIN-Hit hard by falling Russian natural gas deliveries, German energy giant Uniper SE reported a net loss of more than $12.6 billion for the first half of the year, deepening the turmoil at one of the first corporate victims of Europe's energy crisis.

Uniper, Germany's largest importer of Russian gas, has been forced to buy gas on the market where prices are near records after Moscow slashed deliveries to Germany from June. The German government last month agreed on a 15-billion-euro rescue package, equivalent to $15.24 billion, for Uniper and decided to take a 30% stake in the company.


Russia Hunts Saboteurs in Crimea After Blasts

DNIPRO, Ukraine-Russia's intelligence services were hunting for saboteurs in Crimea on Wednesday after an explosion at an ammunition depot rattled Moscow's grip on the peninsula.

Tuesday's blasts followed an explosion last week at an air base in Crimea, which was annexed by Moscow in 2014.


U.K. Inflation Tops 10%, Underlining Gloomy Outlook for Europe

The U.K.'s annual rate of inflation moved into double digits in July and is set to rise even higher by the end of the year, heaping greater pressure on stretched household budgets and threatening a lengthy economic contraction.

That pickup in inflation has been replicated in other parts of Europe, even as consumer prices have started to slow in the U.S. That is because energy prices have continued to accelerate across Europe as Russia withholds supplies of natural gas, with the continent facing a possible crunch this winter.



U.S. Home-Sales Report for July Comes as Housing Market Cools

The National Association of Realtors' July report on existing-home sales will cap a week of figures that so far have pointed to a slowdown in the housing market.

NAR will release July home-sales data at 10 a.m. ET Thursday.


Bank Stocks Make a Comeback

Bank stocks have had a rough year. Lately they're showing signs of life.

Since the end of June, five of the six largest U.S. banks have outperformed the S&P 500's 13% gain. Shares of Morgan Stanley and Goldman Sachs Group Inc. are up 20% and 19%, respectively. Wells Fargo & Co. is up 18%, while Citigroup Inc. and Bank of America Corp. each have gained about 17%.


A Top Gas Producer Considers Cutting Exports. Its Timing Couldn't Be Worse.

SYDNEY-Australia is shipping so much natural gas overseas that authorities could block some exports to plug shortages at home.

Such a move would put global energy supply under further strain as Europe faces the prospect of severe fuel shortages this winter and Asian economies including Japan and China store more gas ahead of seasonal peaks in demand. The Ukraine war cut gas supplies at a time when much of Europe experienced a severe heat wave that drove demand higher.


Fed Officials See Need for Continued Interest-Rate Increases, but Less Certainty Over Destination

Federal Reserve officials agreed at their monetary-policy meeting last month they needed to keep raising interest rates enough to lower inflation, but signaled greater caution with the pace of coming increases.

The central bank has raised rates this year at its fastest pace since the 1980s. Minutes from the Fed's July 26-27 policy meeting, released Wednesday, showed officials were sensitive to two opposing risks as they weighed how and when to slow those increases.


U.S., Taiwan to Begin Formal Talks for Trade, Investment Pact This Fall

WASHINGTON-The U.S. announced Wednesday that it and Taiwan will start negotiations for a bilateral trade and investment initiative this fall to deepen ties on a range of issues including technology and agriculture.

The new pact will also address ways to respond to "distortive practices of state-owned enterprises and nonmarket policies and practices," the U.S. Trade Representative's office said, in a clear reference to China's policies without naming the country.


Philippines Central Bank Raises Policy Rate to Help Curb Inflation

The Philippine central bank decided to raise its benchmark interest rate in an attempt to help control rising inflation.

The Bangko Sentral ng Pilipinas said Thursday that it would increase its benchmark overnight borrowing rate by 50 basis points to 3.75%, effective Friday, and its corresponding lending rate by the same amount to 4.25%.


Ukraine Strikes Russian Base Ahead of Talks With Turkey, U.N.

ODESSA, Ukraine-Ukrainian forces said they hit another base in Russian-occupied Kherson as the leaders of Turkey and the United Nations were expected to meet with President Volodymyr Zelensky and discuss food shipments from Ukraine and the increasingly tense situation at the Zaporizhzhia nuclear plant.

The Ukrainian military's Southern Command said Thursday that it had struck an ammunition depot in the village of Bilohirka, near the front line of fighting in the Kherson region. The rocket strike is the latest in a series of attacks that have targeted logistics in the Russian-occupied south-part of a strategy to starve Russian troops in the region of supplies and force them to withdraw from the territory they are holding west of the Dnipro River.


Russia Moves to Close Key Jewish Group as Ties With Israel Sour

Russia is moving to close an important nonprofit organization that helps Russian Jews emigrate to Israel, in a sign of deteriorating relations between the Kremlin and the Israeli government amid tensions over Israel's stance on Russia's war in Ukraine.

On Friday, a Russian court will hear the case against the Jewish Agency for Israel, which the Russian Justice ministry accuses of violating the country's privacy laws. The agency, which works closely with the Israeli government, is responsible for helping Jews around the world immigrate to Israel and moves against it are seen in Israel as an attack on the country. It has been a significant player in the country's history and played a central role in the run-up to its founding in 1948.


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(END) Dow Jones Newswires

August 18, 2022 07:00 ET (11:00 GMT)

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