Stocks and Euro climb as markets eye Jackson Hole

  • Equities rise in Europe, driven by commodities stocks
  • Euro rises above parity as Germany avoids Q2 contraction
  • Gasoline prices hit new high
  • Markets watch for signals from Fed conference in Jackson Hole

LONDON, Aug 25 (Reuters) – Stock markets pushed higher and European bond markets and the euro escaped a selloff linked to energy prices on Thursday as investors waited to hear the latest reaction of the world’s leading central bankers in the face of soaring inflation.

Asia had hounded Wall Street higher overnight and European stocks followed suit as oil and gas stocks jumped another 1.5% .SXEP amid growing worries of a crisis. gas supply from Russia.

GDP data from the continent’s largest economy, Germany, also provided relief. News that the country narrowly avoided a contraction in the second quarter also helped push the battered euro back above parity against the US dollar.

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Traders didn’t know how long it would last. The European Central Bank is due to release minutes later from its last meeting, where it raised rates by 50 basis points. Gasoline prices have steadily climbed since then, fueling recession fears.

The start of the Federal Reserve’s annual monetary policy conference in Jackson Hole, Wyoming, also loomed on Friday. The focus is on raising US interest rates if inflation continues to rise.

“Everything is spot on until we figure out what Fed chief (Jerome) Powell has to say in Jackson Hole,” Saxo Bank head of FX strategy John Hardy said.

On the euro, which had worked its way up to $1.0003, he added: “We need some relief from soaring gas and electricity prices to get a real traction… There’s tremendous pressure on that front.”

The 0.7% rise in European stocks (.STOXX) left the MSCI 47-country index of global stocks up 0.4% (.MIWD00000PUS), with US equity futures pointing to similar gains for the S&P 500 later.

Borrowing costs in bond markets also fell slightly after a choppy few days that saw another sharp rise, particularly in Europe where gas prices have now more than tripled since June alone.

The German 10-year rate fell about 2 basis points to 1.35% after touching 1.39%. Italy’s 10-year yield also fell to 3.65% and US yields, which are the main driver of global borrowing costs, hovered just above 3%, from 2.51% in Beginning of the month.

The gas crisis pushes the euro to parity


Investors lowered their expectations that the Fed could tilt towards a slower pace of rate hikes as US inflation remains at 8.5% on an annual basis, well above the 2% target of the Fed. But Chairman Jerome Powell’s speech scheduled for Friday will be scrutinized for any indication that an economic slowdown could alter the Fed’s strategy.

Investors now expect the Fed Funds rate to peak at 3.80% in March 2023, from 3.62% a fortnight ago, said Tapas Strickland, chief economics officer at NAB.

“The market moves are at least consistent with the hawkish pullback observed by Fed officials in recent weeks,” he added.

Interest rate futures imply a 60% chance of a 75 basis point Fed hike in September, up from 50% earlier this week.

Still, MSCI’s broadest Asia Pacific ex-Japan equity index (.MIAPJ0000PUS) edged up 0.7%, after US stocks ended the previous session with modest gains.

Australian stocks (.AXJO) climbed 0.7%, while Japan’s Nikkei stock index (.N225) rose 0.72%.

China’s CSI300 (.CSI300) rose 0.8% while Hong Kong’s Hang Seng Index (.HSI) jumped 3.6% in a typhoon-shortened trading session .

“At the moment, stock markets view bad news about the economy as mostly good news, because to them it means the Fed may not tighten as much as expected,” said Rob Subbaraman, head of research. global macroeconomics at Nomura.

“But stock markets may have to reassess that after Jackson Hole.”

On the foreign exchange market, the dollar fell by nearly 0.5% including 0.4% against the euro and 0.5% against the yen at 136.62.

Commodity bulls saw Brent crude rally to $101.83 a barrel and Europe’s benchmark gas price jumped to a new record high of 313.50 euros per megawatt hour. . They are now up 640% from last year.

Deutsche Bank strategist Jim Reid said the worry was that the energy situation in Europe was getting worse.

“This adds to fears that ‘peak inflation’ has not yet arrived for some countries,” he said. “Policymakers are about to face some unenviable choices as they grapple with the worst stagflation we’ve seen in decades.”

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Additional reporting by Scott Murdoch in Hong Kong

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