European stock markets showed some weakness on Wednesday in light of the UK’s unexpected contraction in July, while investors awaited crucial US inflation data.
As of 03:25 ET (07:25 GMT), Germany’s DAX index was down 0.2%, France’s CAC 40 dropped 0.1%, and the UK’s FTSE 100 fell 0.2%.
UK Economy Contracts in July
New data revealed that the UK’s economy contracted by 0.5% on a monthly basis in July, a figure significantly higher than the anticipated 0.2% decrease. Strikes in hospitals and schools were a contributing factor to the decline in output.
July also saw a 0.7% decrease in industrial production and a 0.8% drop in manufacturing output, underscoring the difficulties faced by the nation’s industrial sector. Notably, all major sectors of the UK economy, including services, manufacturing, and construction, saw declines during the month.
While the Bank of England is still widely expected to raise interest rates to 5.5% from 5.25% next week due to ongoing wage growth, this economic slowdown raises questions about whether this rate hike will mark the end of the current tightening cycle that began in December 2021.
Anticipation of Another ECB Rate Hike
Ahead of the Bank of England’s meeting, the European Central Bank (ECB) is set to meet on Thursday. Expectations for another quarter-point rate hike have increased following a Reuters report indicating that the central bank expects inflation to remain above 3% next year in its updated forecasts, significantly surpassing its 2% target. The ECB has increased rates at each of its past nine meetings, and another 25-basis-point increase would bring the key deposit rate to 4%.
Later in the session, data on eurozone industrial production for July is expected to be released. Forecasts indicate a 0.7% month-on-month decline and a 0.3% drop on an annual basis.
US Inflation Data to Influence Fed Decision
However, the day’s most critical economic data release is the August Consumer Price Index (CPI) from the US. This data will provide further insights into the country’s inflation outlook and may clarify the Federal Reserve’s future interest rate decisions.
The core CPI, which excludes volatile food and energy prices, is expected to cool to 4.3% year-on-year in August, down from 4.7%. Nonetheless, surging oil prices point to the headline annual figure rising to 3.6% from the previous month’s 3.2%.
Federal Reserve officials have indicated that they could pause when they meet later this month, having raised rates at 11 of their past 12 meetings as they assess their progress. However, they’ve cautioned against interpreting a pause as an indication that they are finished raising rates.
BP CEO Departs Amid Controversy
In corporate news, BP PLC saw its stock decline 1% after CEO Bernard Looney’s surprise departure due to a failure to fully disclose details of past personal relationships with colleagues. Looney played a crucial role in advancing the company’s energy transition strategy, raising questions about the firm’s future direction.
Redrow’s stock also fell by 0.6% after the UK housebuilder reported a decline in full-year completions, attributing it to rising mortgage rates. The company also expects continued headwinds, with summer sales anticipated to be challenging.
Crude Oil Continues to Rise
Oil prices continued to edge higher, boosted by a bullish demand outlook from the OPEC monthly report and signs of global supply constraints.
The International Energy Agency is set to release its monthly report during this session.
Furthermore, the Energy Information Administration predicted that global oil inventories would fall by nearly half a million barrels per day in the second half of 2023.
However, this positive news was tempered by data from the American Petroleum Institute, indicating a 1.2 million barrel increase in US crude inventories last week, possibly indicating a slowdown in fuel consumption in the world’s largest economy after a strong summer season.
At 03:25 ET, US crude futures were up 0.4% at $89.17 per barrel, while the Brent contract climbed 0.2% to $92.28. Both contracts remained near their highest levels since November 2022.
In addition, gold futures fell 0.1% to $1,932.95 per ounce, and EUR/USD traded 0.1% lower at 1.0738.
