As widely expected, the BoE raised interest rates by 50 basis points to 1.75%, its sixth hike since December but the biggest since 1995. The UK economy will start contracting in the last quarter of 2022 and will contract throughout next year, making it the biggest recession since the global financial crisis, the central bank said. read more Sign up now for FREE unlimited access to Reuters.com Register “The main surprise seems to be the somewhat negative economic forecasts we’ve been given, which point to a recession expected in the fourth quarter and lasting until 2023,” said Stuart Cole, chief macro economist at Equiti Capital. “This is somewhat worse than what we had seen in May, where the outlook was for one or two difficult quarters of low or negative growth and then recovery.” Sterling fell 0.2% to $1.2122 after being slightly firmer ahead of the BoE announcement. British gold yields fell sharply, with eurozone bond yields extending their slide after the BoE statement. S&P 500 futures were steadier ahead of Wall Street’s open and the latest jobless claims data, although Friday’s nonfarm payrolls will be more closely watched. Stocks were steadier overall on Thursday, helped by strong gains in Europe, while Asian shares recovered some of Wednesday’s losses on tension over Nancy Pelosi’s visit to Taiwan. The STOXX (.STOXX) index of top European companies gained 0.5 percent, helped by German airline Lufthansa ( LHAG.DE ) returning to operating profit and strong earnings from commodities giant Glencore ( GLEN.L ). French bank Credit Agricole joined the growing list of better-than-expected bank earnings. read more Shares in Hong Kong (.HSI) rose 2 percent, tracking broader gains in Asia (.MIAP00000PUS), reeling from some of the losses suffered after China-U.S. tensions flared over a visit to Taipei this week by President of the House of Representatives Pelosi, which angered China. read more Oil prices steadied after falling to six-month lows, while the dollar was supported by Federal Reserve officials pushing back on suggestions they will slow the pace of rate hikes, with one saying a 50-basis-point hike would be “ logic”. read more A survey by the European Central Bank showed that consumers in the eurozone are preparing for a contraction of the economy and a continuation of high inflation. read more
NO RECOVERY OF PROFITS YET
Kasper Elmgreen, head of equities at asset manager Amundi, said the illusion that decades of high inflation would be temporary was now over as fuel bills rose and companies struggled to find staff. “The big picture here is that it’s going to take a lot to restore price stability. The danger here is that we’re underestimating how strong a force we’re up against,” Elmgreen said. The second-quarter earnings season now underway has not provided a significant “reset” to what Elmgreen sees as earnings expectations that remain too high for 2022 overall as the economy slows. “I think that might happen in the third quarter or the fourth quarter as we start to see more of an impact on demand,” Elmgreen said. Fed officials provided a hawkish chorus this week, hammering the short end of the yield curve. Yields on the two-year note traded at 3.0938%, slightly lower, while benchmark 10-year yields traded at 2.7209%, also slightly lower. The dollar has halted a slide that began in mid-July, supported by both interest rate hike expectations and heightened political tension. Fed funds futures remain priced for rate cuts by the middle of next year, and the inversion of the U.S. yield curve, with 10-year yields below two-year yields, suggests investors believe the hiking path will impair growth. The dollar index is trading at 106.27, down 0.178%. One euro weighed down by Europe’s energy crisis bought $1.0188. Brent crude futures were slightly firmer at $96.82 a barrel as supply concerns prompted a rebound from multi-month lows on Wednesday after US data showed weak demand for the fuel. read more Spot gold rose 0.9% to $1,781 an ounce. Sign up now for FREE unlimited access to Reuters.com Register Reporting by Tom Westbrook in Singapore and Kevin Buckland. Editing by Kim Coghill, Mark Potter and Susan Fenton Our Standards: The Thomson Reuters Trust Principles.
