The pound weakened and UK bonds led a global rally after inflation in Britain slowed more than expected, easing pressure on the Bank of England to aggressively increase interest rates. Stocks in the UK and Europe advanced.
(Bloomberg) — The pound weakened and UK bonds led a global rally after inflation in Britain slowed more than expected, easing pressure on the Bank of England to aggressively increase interest rates. Stocks in the UK and Europe advanced.
Yields on two-year UK government bonds plunged as traders pared bets on where BOE rates will peak. The yield is down around 50 basis points since last week’s softer-than-expected US inflation reading, the biggest drop among developed-nation bonds. Treasury yields retreated across the curve Wednesday.
Rate-sensitive real estate stocks led gains in Europe’s Stoxx 600 index, with UK homebuilders surging the most since 2008 on optimism about less-aggressive hikes. US futures were flat after Wall Street stocks rose on Tuesday, as results from Bank of America Corp. and Morgan Stanley bolstered bank shares.
The encouraging UK inflation news added to positive signs from the US and Europe, bolstering hopes among investors that a campaign of tightening by global central banks to curb prices is drawing to a close. The focus for market impetus returns later to US earnings, with Goldman Sachs Group Inc., Netflix Inc. and Tesla Inc. all scheduled to report.
“It’s clear that the latest inflation data across the globe, like this morning in England or earlier in the US or in Europe show an easing trend and that’s taking pressure off rates,” Bruno Vacossin, a Paris-based senior portfolio manager at Palatine Asset Management, said by phone. “This is providing oxygen to financial markets. So far the earnings season has provided pretty good results. All of this should help maintain markets at decent levels.”
The UK Consumer Prices Index was 7.9% higher than a year ago in June, a sharp drop from the 8.7% reading in May. It was the first downward surprise in five months and the biggest since July 2021, below the 8.2% expected by economists. The pound slid as much as 0.9% against the dollar, accounting for much of the gain in a gauge of greenback strength.
In individual stock moves, Kering SA soared after the luxury group announced the departure of the head of the Gucci brand. Aston Martin Lagonda Global Holdings Plc rallied after Goldman Sachs analysts upgraded the UK carmaker. Swedish truck and bus maker Volvo Group declined as its cautious comments about demand outweighed a second-quarter earnings beat.
AT&T Inc. rose in US premarket trading after the telecommunications company reassured investors by saying less than 10% of its nationwide copper-wire telecom network had lead-clad cables. Carvana Co. jumped after the used-car retailer reached an agreement to restructure debt and reported second-quarter revenue that beat estimates.
In Asia, shares in Hong Kong and mainland China were Wednesday’s worst performers, while the offshore yuan fell to the weakest level in more than a week. Investors see no easy fix to China’s economic slump, with fresh signs of financial stress among the nation’s dollar-bond issuers. Economists say Beijing’s plan to boost consumption won’t meaningfully bolster the recovery and are shifting their focus to potential measures from the Politburo meeting later this month.
Concerns over the outlook for the world’s second-largest economy spread to Europe, with mining stocks the region’s biggest decliners after Rio Tinto Plc reported lower shipments of iron ore to China as its faltering recovery continues to weigh on demand.
The yen weakened for a second day following Bank of Japan Governor Kazuo Ueda’s comment that it would maintain monetary easing unless there is a shift in its price goal view.
Key events this week:
- Eurozone CPI, Wednesday
- US housing starts, Wednesday
- China loan prime rates, Thursday
- US initial jobless claims, existing home sales, Conf. Board leading index, Thursday
- Japan CPI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 6:45 a.m. New York time
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average rose 0.1%
- The Stoxx Europe 600 rose 0.3%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro was little changed at $1.1218
- The British pound fell 0.9% to $1.2923
- The Japanese yen fell 0.7% to 139.87 per dollar
Cryptocurrencies
- Bitcoin rose 0.7% to $29,994.1
- Ether rose 0.8% to $1,909.29
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.75%
- Germany’s 10-year yield declined three basis points to 2.36%
- Britain’s 10-year yield declined 17 basis points to 4.16%
Commodities
- West Texas Intermediate crude rose 0.3% to $75.94 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar and Julien Ponthus.
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