European stock markets presented a mixed and cautious picture at Wednesday’s open.
The markets were impacted with the investors grappling with a confluence of factors including fresh UK inflation data, the looming US Federal Reserve interest rate decision, and persistent geopolitical tensions in the Middle East.
While pre-market futures had signaled sharp falls, the actual open saw a more varied performance across major bourses.
Early market indications from IG futures data had painted a bearish picture, suggesting significant opening declines across Europe: London’s FTSE was anticipated to open 52 points lower at 8,827, Germany’s DAX down 245 points at 23,447, France’s CAC 40 down 75 points at 7,665, and Italy’s FTSE MIB 329 points lower at 39,568.
However, the actual open appeared somewhat more nuanced, though the underlying caution remained.
Global investors continue to closely monitor the ongoing conflict between Israel and Iran, which saw continued missile attacks and airstrikes on Monday.
This volatile situation has kept markets on edge, fueling a rise in oil prices due to supply worries and an increase in gold prices as investors flock to traditional safe-haven assets.
These safe-haven assets saw their prices rise further overnight. US stock futures also turned lower after US President Donald Trump signaled a potential further escalation in attacks, urging Iranians to evacuate Tehran, a development that has done little to soothe market nerves.
UK inflation cools slightly, gilts strengthen
A key piece of economic data for European investors on Wednesday morning was the UK inflation report.
Inflation in the United Kingdom cooled slightly to 3.4% in the year to May, according to figures released by Britain’s Office for National Statistics.
This reading was in line with analysts’ expectations and offered a measure of relief after inflation had unexpectedly surged to 3.5% a month earlier.
In response to the inflation data, UK government bonds, known as gilts, strengthened slightly. The yield on the benchmark 10-year gilt was around 2 basis points lower by 7:07 a.m. in London.
Yields on 2-year and 20-year gilts also dipped by around 1 basis point, while 5-year and 30-year gilt yields remained unchanged.
Bond prices and yields move in opposite directions, so falling yields indicate rising bond prices and increased investor demand for these safer assets.
The slight cooling in UK inflation will be closely watched by the Bank of England, though it comes against a backdrop of broader economic uncertainties and persistent geopolitical risks that continue to influence global market sentiment and central bank considerations.
All eyes will now also turn to the US Federal Reserve, which is due to announce its interest rate decision later in the day, a move that will undoubtedly have significant implications for markets worldwide.
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