European stocks struggle for direction, sterling rallies after BoE warning

LONDON, Oct 12 (Reuters) – European stocks were flat in early trading on Wednesday as the pound rallied after hitting a 13-day low overnight as the Bank of England reiterated that would end its emergency bond purchases at the end of the week. .

Global stock markets have fallen sharply in recent days, hit by heightened fears of an economic slowdown amid warnings from the IMF and World Bank.

Asian stocks remained stuck near their lowest level in two years, weighed down by signs that China will persist with its strict COVID-19 policies.

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The MSCI World Stock Index, which tracks stocks from 47 countries, was flat on the day at 08:46 GMT, holding near the previous session’s two-year low (.MIWD00000PUS).

The European STOXX 600 was down 0.1%, having fallen for the past four consecutive sessions (.STOXX).

“We have seen a very rapid decline in equity markets over the past few days, obviously due to heightened fears of recession,” said Axel Rudolph, market analyst at IG Group.

“I think we’re seeing some short coverage and I wouldn’t be surprised if that also fuels US markets later in the day with people positioning themselves more neutral ahead of Thursday’s CPI data.”

US producer price data due at 12:30 GMT should keep the Fed on course for rate hikes. Consumer price data (CPI) is due Thursday.

The pound hit a 13-day low overnight after Bank of England Governor Andrew Bailey said pension funds and other investors hit by a spike in UK gilt yields n had three more days to resolve their issues before the central bank ended its emergency. bond purchase plan. The pound fell more than a penny against the dollar after the remarks.

But the BoE has also privately signaled to lenders that it stands ready to extend support beyond Friday’s deadline if necessary, the Financial Times reported.

As of 08:49 GMT, the pound was up 0.8% on the day at $1.1045.

MARKET CONSTRAINT

Britain’s economy contracted unexpectedly in August, according to GDP data.

IG’s Rudolph said the tension in UK markets – which began when the UK government announced its “mini-budget” fiscal plans on September 23 – is contributing to broader negative sentiment in the market.

“It’s just another nail in the coffin as far as sentiment goes and market sentiment has really taken a hit the past few days,” he said.

Former US Treasury Secretary Larry Summers criticized UK government policy and communications at an investment conference in Sydney.

Yields on UK gilts rose across a range of maturities, with 2-year yields recording the biggest increase.

The euro remained stable at $0.97075. Yields on Eurozone government bonds also rose, following weakness in the UK gilt market.

The US dollar index fell about 0.1%. Overnight, the dollar rose above the 146 per yen level for the first time in 24 years, prompting authorities in Tokyo to pledge to intervene if necessary.

Minutes from the Fed’s latest policy meeting are also expected to be released later in the session.

The International Monetary Fund’s chief economist said on Tuesday that central banks’ fight against inflation could take another two years, increasing unemployment and lowering living standards for many around the world.

On Monday, the president of the World Bank and the managing director of the IMF warned of a growing risk of recession.

The war in Ukraine also weighed on market sentiment. The G7 pledged to support Kyiv “as long as necessary”.

Oil prices recouped some of their losses, after falling 2% in the previous session.

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Reporting by Elizabeth Howcroft; Editing by Alex Richardson

Our standards: The Thomson Reuters Trust Principles.

Elizabeth Howcroft

Thomson Reuters

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and money that generates “Web3”.

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