European stocks soared today, riding the wave of U.K. banking gains, while investors eagerly awaited the release of crucial U.S. inflation data.
As the clock struck 03:50 ET (07:50 GMT), Germany’s DAX index climbed 0.5%, accompanied by a 0.5% rise in France’s CAC 40. However, the U.K.’s FTSE 100 took a minor dip of 0.6%.
The European equities experienced an upswing today, thanks to Wall Street’s impressive performance overnight. Adding to the positive momentum, the heavily-weighted U.K. banking sector witnessed substantial gains following the Bank of England’s financial stability report.
In its report, the Bank of England assured that the eight major lenders had successfully passed the annual stress test, demonstrating their ability to withstand potential interest rate hikes in a stressed economic environment. As a result, no additional capital would be required from any of these banks.
Major players such as Barclays (LON:BARC), HSBC (LON:HSBA), Standard Chartered (LON:STAN), Lloyds (LON:LLOY), and NatWest Group (LON:NWG) all celebrated stock price increases ranging between 1% and 2%.
In another exciting development, Thales (EPA:TCFP) witnessed a 1.5% surge as the French defense and technology group announced its initiation of talks to acquire Cobham Aerospace Communications, a French supplier, for an impressive $1.1 billion. The transaction is expected to generate double-digit growth annually for Thales in the medium term, thereby enhancing its profit margins.
While the European Central Bank’s (ECB) inflation target of 2% remained elusive, with Spanish consumer prices only increasing by 1.9% year-on-year in June, there were indications that the ECB should contemplate ending its rate-hiking cycle. Interestingly, German inflation saw an unexpected rise of 6.4% on an annual basis in June, interrupting the downward trend observed since the year’s beginning. As the largest economy in the eurozone, Germany’s inflation data suggests that the ECB’s series of interest rate increases may still have some distance to cover.
However, all eyes were on the impending release of the U.S. Consumer Price Index (CPI) report, which held the utmost significance today. With the Federal Reserve expected to raise interest rates at its upcoming meeting later this month, after a recent pause, the U.S. CPI report would offer valuable insights into the number of interest rate hikes remaining in the Federal Reserve’s arsenal.
Market experts anticipated that the headline annual figure would reflect a 3.1% increase in June, following May’s 4% surge, while the core rate was expected to experience a third consecutive monthly decline from 5.3% to 5%. Concerns loomed over the potential consequences of aggressive tightening measures to combat inflation, as a recession in the world’s largest economy could significantly impact global markets.
Amidst these developments, oil prices achieved stability today. Rising U.S. crude stockpiles were counterbalanced by predictions of increased demand. The U.S. Energy Information Administration (EIA) projected that demand would surpass supply by 100,000 barrels per day in 2023 and by 200,000 barrels per day in 2024. Adding further support to the oil market, Saudi Arabia and Russia, two major oil producers, announced additional output cuts for August. Furthermore, the weakening U.S. dollar, which reached a two-month low, contributed to the optimistic sentiment, as it indicated that the Federal Reserve was nearing the end of its rate-hiking cycle.
However, the American Petroleum Institute poured some cold water on the rally as it reported an unexpected growth of over 2 million barrels in U.S. crude stockpiles for the week ending July 7. The official figures from the Energy Information Administration were yet to be released during the session.
By 03:50 ET, U.S. crude futures climbed 0.2% to $74.96 per barrel, while the Brent contract experienced a 0.1% increase, reaching $79.48.
Additionally, gold futures demonstrated a modest rise of 0.1%, reaching $1,939.25 per ounce, while EUR/USD experienced a 0.2% uptick, settling at 1.1025.
Overall, European stocks witnessed a positive trend, driven by U.K. banking gains, as investors eagerly awaited the U.S. inflation data. The global market sentiments were influenced by various factors such as the Bank of England’s financial stability report, Thales’ talks to acquire Cobham Aerospace Communications, and both Spanish and German inflation data. The impending U.S. CPI report and the stability of oil prices also played significant roles in shaping market dynamics.