Morning Chronicle - European stocks fall before key US inflation data

London -


European stocks fall before key US inflation data
European stocks fall before key US inflation data / Photo: John MACDOUGALL - AFP/File

European stocks fall before key US inflation data

European equities fell Wednesday with traders on edge before key June inflation data in the United States.

Text size:

The London stock market sank by nearly one percent, around half-way through the session, despite news of rebounding UK economic growth in May.

Eurozone stocks were down by about one percent after a mixed close in Asia.

The euro clawed back slightly, one day after hitting dollar parity for the first time in two decades on concerns about a possible recession in the eurozone.

Oil rebounded slightly having fallen sharply Tuesday on weaker demand expectations.

- Tenterhooks -

"Markets are on tenterhooks ahead of the US inflation data which will hold great sway over the Fed's rate-hike plans," said Exinity Markets analyst Han Tan.

"A fresh four-decade high, along with more signs of unabating inflationary pressures, may well force the Fed to punch harder and faster in its battle against runaway consumer prices."

Markets fear more evidence of red hot US inflation will prompt the Fed to keep hiking interest rates aggressively after it ramped up borrowing costs by three-quarters of a percentage point last month.

US inflation had spiked to a four-decade high of 8.6 percent in May.

Inflation is soaring worldwide after economies reopened from pandemic lockdowns and as the Ukraine war keeps energy prices elevated.

In a further sign of the pressure being felt around the world, the New Zealand and South Korean central banks each lifted interest rates by 0.5 percentage points Wednesday.

It was the steepest increase by Seoul since 1999.

- Europe gas crisis -

The euro held above $1 a day after hitting parity for the first time since late 2002, as a worsening energy crisis fanned expectations that the eurozone would plunge into recession.

With Russian energy giant Gazprom starting 10 days of maintenance Monday on its Nord Stream 1 pipeline, the bloc -- and particularly gas-reliant Germany -- is waiting nervously to see if the taps are turned back on.

The single currency has been hit also by the European Central Bank's reluctance to raise rates -- in contrast to monetary policy elsewhere.

"A prolonged cut to the gas supply would halt a lot of economic activity, sending (Germany) deep into recession," said Tapas Strickland at National Australia Bank.

He said July 21 -- when the gas should be switched back on -- will be a crucial date.

"That date also happens to be the day of the next ECB meeting," Strickland added.

"Either of these events are key risk events. Russia playing gas politics by not switching on the gas supply would likely see the euro lurch much lower."

- Key figures at around 1130 GMT -

London - FTSE 100: DOWN 0.8 percent at 7,149.84 points

Frankfurt - DAX: DOWN 1.0 percent at 12,770.74

Paris - CAC 40: DOWN 0.9 percent at 5,989.00

EURO STOXX 50: DOWN 1.0 percent at 3,451.61

Tokyo - Nikkei 225: UP 0.5 percent at 26,478.77 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 20,797.95 (close)

Shanghai - Composite: UP 0.1 percent at 3,284.29 (close)

New York - Dow: DOWN 0.6 percent at 30,981.33 (close)

Euro/dollar: UP at $1.0055 from $1.0037 Tuesday

Pound/dollar: UP at $1.1919 from $1.1889

Euro/pound: DOWN at 84.37 pence from 84.40 pence

Dollar/yen: UP at 137.08 yen from 136.84 yen

West Texas Intermediate: UP 1.0 percent at $96.84 per barrel

Brent North Sea crude: UP 0.6 percent at $100.05 per barrel