European stocks hover ahead of central bank rate moves

European equities traded cautiously on Thursday as investors balanced positive US corporate earnings and economic data with a wave of monetary tightening by central banks.

The regional Stoxx 600 share index was flat in early trades, while London’s FTSE 100 slipped 0.1 per cent.

The moves came after Wall Street’s tech-heavy Nasdaq Composite index, which was beaten down in the first half of 2022 as higher interest rates lowered the appeal of highly valued growth stocks, rose to its highest in three months on Wednesday. The rally was driven by better than expected quarterly earnings from PayPal, as well as strong results from the US services sector.

The Bank of England is widely expected to lift its main interest rate by as much as 0.5 percentage points to 1.75 per cent later on Thursday, in what could be its largest rate rise for more than 25 years, to battle soaring inflation.

“Recent inflation signals point to an extended period of it running well above target,” Goldman Sachs Asset Management strategist Gurpreet Gill said. “With inflation set to rise to double digits this autumn, we expect the Bank of England to deliver,” she added, “with a 0.5 percentage point rate hike.”

Sterling was steady against the dollar ahead of the decision, at just over $1.21, as traders prepared for a rate rise and signals from the BoE’s monetary policy committee about the future path of borrowing costs.

In the US, several Federal Reserve officials on Wednesday moved to scotch recent market speculation that the central bank would pivot towards cutting rates next year.

Minneapolis Fed president Neel Kashkari commented that the scenario was unlikely, while St Louis Fed president James Bullard told CNBC, “I think we’ll probably have to be higher for longer” to bring inflation down from 40-year highs.

The 10-year US Treasury yield moderated by 0.01 percentage point to 2.74 per cent on Thursday morning, however.

“The Fed rates message should be clear, but the market isn’t buying [it],” Rabobank strategist Michael Every said.

Global stocks have rallied in the past month, following the worst first half of the year for US equities for at least half a decade, although many investors view the bounceback as unsustainable.

“Until inflation is convincingly falling to acceptable levels and the Fed has undoubtedly pivoted, a new sustained bull market in risk assets is unlikely,” Jason Draho, head of asset allocation for the Americas at UBS’s wealth management unit, warned in a note to clients.

Futures contracts tracking the 100 largest stocks on the Nasdaq turned 0.1 per cent lower on Thursday morning. Those on Wall Street’s broad-based S&P 500 share index were flat.

In Asia, Hong Kong’s Hang Seng share index rose 1.9 per cent, led by tech stocks and as markets looked through heightened tensions between China and Taiwan. China’s CSI 300 stock index added 0.9 per cent and Tokyo’s Nikkei 225 closed 0.7 per cent higher.


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