European stocks made moderate gains by late morning on Thursday after the Federal Reserve predicted the US economy would go through a “mild recession”.
The region-wide Stoxx 600 rose 0.2 per cent but London’s FTSE 100 was flat and Germany’s Dax was down 0.2 per cent. France’s Cac 40 was the standout gainer in Europe, rising 0.8 per cent as strong earnings from LVMH boosted demand for luxury stocks.
Traders took heart from minutes from the Federal Open Market Committee March meeting that showed officials predicting a “mild recession” starting later this year, before the economy recovers over the next two years.
Futures contracts for the S&P 500 and the tech-heavy Nasdaq Composite took up the momentum in pre-market trading — up 0.1 and 0.2 per cent respectively.
Gains were capped after overnight economic data from the US showed headline inflation was down to 5 per cent, the lowest reading since July. However, core CPI, the measure preferred by the Fed because it strips out volatile food and energy prices, rose to 5.6 per cent.
The mixed outlook on inflation curbed gains overnight on US markets, with the S&P down 0.4 per cent and the Nasdaq dropping 0.9 per cent.
Investors are weighing the impact of the data and the economy shrinking on the Federal Reserve’s next meeting in May. Investors have grown more confident that falling inflation will persuade the Fed to moderate the pace of interest rate rises to combat consumer price pressures.
Swaps markets predict a 70 per cent chance of a 0.25 percentage point increase over no change, according to data from Refinitiv.
In Europe investors are pricing in a more hawkish path from the European Central Bank, with nearly a two in three chance of a 0.25 percentage point rise and roughly a one in three chance of a larger half-point increase.
On Wednesday, governing council member Robert Holzmann said the ECB should raise rates by 0.5 percentage points as the “danger of currently doing too little and to fan inflation is bigger than the risk of doing too much”.
European industrial production data released on Thursday was above forecasts at 1.5 per cent, a half percentage point higher than the previous month. German 10-year Bund yields rose 0.02 percentage points to 2.37 per cent.
Later on Thursday the US will publish producer price index data and jobless claims will be released. Ahead of the release, the two-year and 10-year US Treasuries both rose 0.01 percentage points — at 3.98 per cent and 3.43 per cent respectively.
“With the US economy cooling and a Fed pivot not imminent, we believe the environment for equities will remain challenging in the coming months,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
In Asia, Hong Kong’s Hang Seng index closed up 0.2 per cent and China’s CSI 300 was down 0.7 per cent.
Source: Economy - ft.com
