Currencies set the pace on European stock markets – Financial Times

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Tuesday 12:40 GMT

What you need to know

  • Sterling falls after inflation data miss forecasts, helping UK stocks tick higher
  • Euro gathers momentum as German growth picks up, limiting continental stocks
  • Wall Street set to slip as investors wait for progress on tax reform
  • Pressure grows on oil under $63 a barrel
  • Swedish Krona hits 12-month euro low after disappointing inflation data

Leading quote

“At 3 per cent, [UK] inflation looks like it has peaked and without further signs of domestically driven price pressures, the Bank of England will tread carefully,” said James Smith, economist at ING.

“Over coming months, we expect headline CPI to trend lower. Given political uncertainty, rising import costs and slow growth, we think the BoE’s 3 per cent forecast for next year could prove to be optimistic. We don’t rule out a rate hike in 2018, but Brexit negotiations will be a big determining factor.”

Hot topic

A rallying euro and weakening pound are setting the pace on European stock markets, lifting the FTSE and weighing on continental bourses.

The trading pattern comes after UK inflation data were softer than expected casting doubt on the pace of the Bank of England’s rate-tightening process. Strong German growth data has lifted the euro, leading to pressure on equities in the shared currency area.

Sterling is weakest against its nearest neighbour, softening by 0.6 per cent with £0.8951 required for a unit of the shared currency, a nadir of nearly three weeks.

The euro is up 0.6 per cent at $1.1732, its highest since October 26.

Against the dollar, the pound is down 0.1 per cent at $1.3103. That leaves it below its 100-day moving average of $1.311 — a widely followed measure of trading momentum used to track prices. When an asset moves through the level, as sterling did on Monday, it can accelerate the trend.

The FTSE 100 is up 0.2 per cent and the mid-cap FTSE 250 is 0.4 per cent higher on the day as investors factor in the data. As the euro rallies, continental bourses are losing earlier gains.

The international Euro Stoxx 600 is down 0.4 per cent, with Frankfurt’s Xetra Dax down 0.2 per cent and the Paris CAC 40 down 0.3 per cent.

Equities

Hong Kong’s Hang Seng index is down 0.1 per cent and the Topix in Tokyo 0.3 per cent.

New York’s S&P 500 edged up 0.1 per cent overnight, after suffering its first weekly decline since September last week. It is expected to fall by the same margin according to futures trade.

Forex and fixed income

The dollar is struggling without progress on the US tax reform package that is yet to emerge properly but which looks to have been priced into markets. The dollar index is down 0.2 per cent at 94.404.

Sweden’s krona has hit a 12-month low against the euro, with Skr9.8655 required for a unit of the shared currency after disappointing inflation data.

In debt markets, yields on the US 10-year Treasury and its Japanese equivalent are flat at 2.406 per cent and 0.043 per cent, respectively.

Traders are looking ahead to the start of American trading after Standard & Poor’s became the first rating agency to say that Venezuela is officially in default after it missed two interest payments on its $60bn debt pile.

Commodities

Brent crude is 0.6 per cent lower at $62.80 a barrel, moving further off the two-year high of $64.65 it reached last week when it was buoyed by political tumult in Saudi Arabia.

Gold is down 0.3 per cent at $1,271.84 an ounce.

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