European shares fall as traders await Fed chair testimony

European shares edged lower on Wednesday as investors awaited testimony to Congress from Federal Reserve Chairman Jay Powell later in the day, while warmer-than-expected UK inflation data reinforced the idea that the Bank Off England will look to push their tight campaign for a long time.

The broader Stoxx 600 was down 0.1 percent during the session. Wall Street was set for a quiet open, with futures tied to the S&P 500 flat.

In the UK, official data on Wednesday showed the annual rate of consumer price inflation remained at 8.7 per cent in May, well above analysts’ expectations of 8.4 per cent, prompting investors to believe the central bank may continue to expand its is far from the end. tightening cycle.

Core inflation, which excludes volatile food and energy prices, rose again to 7.1 percent in May from 6.8 percent in the previous month.

Futures markets indicated a slightly higher than 50 percent chance that the BoE would hike interest rates by 0.25 percentage points as they meet on Thursday, but a larger half-point hike grew more likely.

“I don’t think (inflation) is high enough to materially increase the likelihood of a 50 basis point increase tomorrow, but it certainly increases the risks that we get a hike of more than 5 per cent in August”, said Imogen Bachara, head of UK rates strategy at NatWest.

Swap markets revised down estimates that the Bank of England rate will peak early next year at 5.93 percent, compared with its current level of 4.5 percent.

The yield on two-year gilts, which are sensitive to interest rate changes, rose 0.11 percentage points to 5.05 per cent, while the yield on the benchmark 10-year rose 0.06 percentage points to 4.4 per cent. Bond yields rise as prices fall.

The pound strengthened 0.3 per cent to trade at $1.28 against the dollar after the announcement, before pulling back to $1.27.

London’s FTSE was flat, but real estate shares were down 1.5 per cent as “expectations of rising interest rates will lift monthly mortgage payments, which will contribute to a slump in business activity and house prices this year”. , said Tom Bill. Head of UK residential research at Knight Frank.

Investors waited for Fed Chair Jay Powell to deliver his semi-annual testimony before the House Financial Services Committee later in the day, hoping to see his stance on future monetary policy in the US.

The US central bank last week opted to hold the benchmark federal funds rate steady at a target range of between 5 percent and 5.25 percent, but indicated that two additional rate hikes were likely later in the year.

Equities faltered in Asia, with China’s benchmark CSI 300 stock index down 1.5 per cent, while the Hang Seng China Enterprises index of mainland companies listed in Hong Kong shed 2 per cent.