London’s FTSE 100 was the biggest riser among the European stock markets this morning, as a falling pound pushed up the blue-chip index.
European indices were slightly higher as investors awaited US Federal Reserve chair Jay Powell’s speech at Jackson Hole, Wyoming this afternoon.
The FTSE 100 was 0.7 per cent higher by 9.30am UK time. Germany’s Dax index was 0.5 per cent higher, France’s CAC 40 had climbed 0.4 per cent, while the pan-European Euronext 100 had risen 0.5 per cent.
Sterling slipped back this morning after it rose yesterday after comments from German Chancellor Angela Merkel and French President Emmanuel Macron were seen as giving Britain some wiggle room to try to escape a no-deal Brexit.
“Headlines from Chancellor Merkel saying there is still time to find a solution to the backstop to avoid a no-deal Brexit sparked optimism,” said Craig Nicol, a macro strategist at Deutsche Bank.
The European gains followed a mixed day for Asian and US stocks yesterday. The Shanghai composite index closed 0.5 per cent higher, boosted somewhat by the Chinese renminbi falling to 11-year lows. Japan’s Nikkei 225 closed up 0.4 per cent, while Hong Kong’s Hang Seng finished 0.6 per cent higher.
US markets were impacted by the inversion of the “yield curve” between the 10-year US Treasury bond and the two-year Treasury, which has traditionally been seen as heralding a recession.
The inversion occurred after senior Fed policymakers signalled unwillingness to cut interest rates further. This caused investors to buy up “safe-haven” longer-dated bonds due to fears the central bank would not act to stave off a downturn.
The S&P 500 closed broadly flat, while the Nasdaq fell 0.4 per cent and the Dow Jones closed 0.2 per cent higher.
“Markets were in something of a holding pattern yesterday going into Powell’s speech,” said Nicol.
Craig Erlam, senior market analyst at foreign exchange firm Oanda, said: “There has been so much made about Powell’s appearance today that he’s going to have to put on the performance of a lifetime just to avoid disappointing the crowd and leaving to a chorus of boos.”
“Unfortunately for the Fed Chairman, I don’t think he has it in him to be the crowd-pleaser that everyone is desperate for.”
Emily Nicol of Daiwa Capital Markets said: “For fear of triggering an unwanted tightening of financial conditions, Powell might seem unlikely to say anything that would contradict significantly current market expectations of further easing to come over the coming year.”