European stock futures surge higher as Powell points to smaller Fed rate hikes

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European stock markets are expected to open higher Thursday, with risk appetite soaring after Fed Chair Jerome Powell signaled the U.S. central bank would reduce the size of its interest rate increases later this month.

At 02:00 ET (07:00 GMT), the DAX futures contract in Germany traded 1.1% higher, CAC 40 futures in France climbed 0.9% and the FTSE 100 futures contract in the U.K. rose 0.3%.

Global economic activity has been battered for months by sharp interest rate increases from a number of senior central banks, and the U.S. Federal Reserve in particular, as they attempted to rein in inflation at record levels.

However, the latest inflation data suggested that price rises may have peaked, giving the Fed room to rein in its monetary tightening.

“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” Powell said.

Wednesday’s November CPI release also showed a bigger than expected fall in the Eurozone, bolstering the case for a slowdown in European Central Bank rate hikes later this month, but an annual figure of 10% is still five times higher than the central bank’s target.

Also helping sentiment was growing optimism that China was softening its stance on COVID-19 restrictions as several cities in the world’s second-largest economy lifted regional lockdowns even with infections remaining at high levels.

Back in Europe, German retail sales slumped 2.8% in October, an annual drop of 5%, as consumers struggled with soaring energy prices, while manufacturing PMI data for the Eurozone as a whole are expected to show the sector continued to contract in November. 

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Crude oil prices edged lower Thursday as a three-day rally stalled, amid uncertainty over what the weekend’s OPEC+ meeting will mean in terms of future global crude supply.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, meets virtually on Sunday, and the fact the delegates are not meeting in person is seen as indicating that future production levels will remain unchanged.

However, crude prices have fallen close to their lowest levels this year, and are below the levels which prompted the group to slash output by 2 million barrels a day last month.

Crude prices had rallied sharply after data showed U.S. inventories shrank substantially more than expected in the prior week, with data from the Energy Information Administration pointing to a drop of over 12 million barrels.

By 02:00 ET, U.S. crude futures traded 0.5% lower at $80.14 a barrel, while the Brent contract fell 0.6% to $86.47. 

Additionally, gold futures rose 2% to $1,795.85/oz, while EUR/USD traded 0.5% higher at 1.0455.

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