London,- European equity markets saw declines on Thursday following a series of corporate earnings reports in the U.S. and Europe. Meanwhile, a rate cut in the UK and prospects of future policy easing in the United States bolstered global bond markets.
The Federal Reserve maintained its interest rates on Wednesday but hinted at a potential cut in September. On Thursday, the Bank of England preempted the Fed by lowering borrowing costs by a quarter-point in a close 5-4 vote.
The pan-European STOXX 600 index fell 0.3%, while Germany’s DAX and France’s CAC 40 each dropped over 0.9%. “The fact that some heavyweights are cutting guidance does not bode well going forward and might explain why European markets are underperforming,” commented Stephane Ekolo, an equity strategist at TFS Derivatives. He pointed to disappointing results, slowing industrial growth, diminished Chinese consumer demand, and a potential resurgence of inflation as contributing factors.
In contrast, Britain’s FTSE 100 outperformed, benefiting from a weaker pound post-BoE rate cut. The more domestically focused FTSE 250 rose 0.7%, hitting its highest level since February 2022. Colin Asher, an economist at Mizuho, interpreted the BoE’s cautious approach to rate cuts as indicative of a steady quarterly pace of reductions.
U.S. stocks closed higher on Wednesday, driven by a rally in chip stocks and the Fed’s indication of possible rate cuts in September. Nasdaq futures increased 0.6%, with Meta Platforms shares surging 7% pre-market on strong earnings. The Nasdaq index rose 3% on Wednesday, while the S&P 500 climbed 1.6%.
Tech stocks in the U.S. have rebounded significantly, with Nvidia soaring 13% on Wednesday, adding about $330 billion in market value. Apple and Amazon are scheduled to report their earnings later on Thursday.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.5%. A regional MSCI IT index jumped 1.7%, and Taiwan’s shares surged 2%. However, Japan’s Nikkei tumbled 2.5% due to a sharp rise in the yen, which impacted the outlook for exporters.
The Japanese yen strengthened to 148.51 per dollar, its highest since mid-March, following the Bank of Japan’s second rate hike in 17 years. The yen later eased to 150.35.
Fed Signals September Cut
U.S. monetary policy remains in focus after Fed Chair Jerome Powell mentioned a “real discussion” about rate cuts during the July meeting. Markets are now betting on a 10% chance of a 50 basis point easing in September, with a total easing of 72 basis points priced in for 2024. Jan von Gerich, chief analyst at Nordea, noted the shift from a tightening bias to a more neutral stance.
Treasuries continued their gains from Wednesday, with the yield on 10-year Treasuries down 5 basis points to 4.0564%. The dollar index rebounded 0.3% after falling 0.4% on Wednesday, while the euro dropped 0.4%. Sterling declined 0.6% following the BoE’s rate cut.
In commodity markets, oil prices continued to rise after the killing of a Hamas leader in Iran heightened concerns about a wider Middle East conflict. Brent crude futures rose 0.9% to $81.53 per barrel, and U.S. West Texas Intermediate crude futures also increased 0.9% to $78.62 per barrel. Gold was down 0.5% at $2,436 an ounce.
Source: Reuters
