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
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
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.
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
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
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
U.S. stock futures inched lower as investors awaited economic
data including jobless claims and home-sales figures, plus more
Following the release of the Fed's minutes on Wednesday,
investor concerns about central bank rate hikes have
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
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
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
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
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
This sentiment is pushing investors away from "risk assets" once
again, the bank said.
DOW JONES NEWSPLUS
U.K. Housing Market Sentiment Still Positive Despite Seasonal
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
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
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
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
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
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
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
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
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
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
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
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
Bank Stocks Make a Comeback
Bank stocks have had a rough year. Lately they're showing signs
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
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
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
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
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,
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
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
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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