European Markets Rally On Fed's Hawkish Inflation Tone

Bridgette Randall
07 Jul, 2022
London

European stock markets scaled higher and the euro struggled after the release of U.S. Federal Reserve policy meeting deliberations. 

The DAX index gained 1.8% to 12,832.46, the CAC-40 index added 1.7% to 6,009.68, and the FTSE 100 index advanced 1.3% to 7,199.05. 

Benchmark indexes in Frankfurt, Paris, and London opened higher after the Federal Reserve policymakers suggested restrictive policy stance and faster interest rate hikes at the next meeting. 

The policy committee members proposed to lift rates by 50 o r75 basis points at the next meeting on July 26. 

The strong commitment to tame inflation supported the market sentiment overcoming the worries that the Fed's aggressive action may lead to a recession.  

British Prime Minister Boris Johnson resigned after more ministers quit his cabinet. 

Johnson was forced to resign only after three years in office as more ministers resigned following several policy missteps and a series of scandals.  

The U.K.-EU relationship hit a new low after Johnson sought to rewrite the terms of Brexit and renege on the promises related to trade with Northern Ireland. 

The British pound jumped 0.4% against the U.S. dollar to $1.197 and the 10-year U.K. government bond rose to 2.136%. 

Germany's industrial production in May rose 0.2% after rising 1.3% in April, deStatis reported on Thursday. 

On an annual basis, the production declined 1.5% from a year ago after falling 2.5% in April. 

Automakers and banks led the gainers.

HSBC Holdings, Commerzbank, BNP Paribas and Natwest Group increased between 2% and 3%. 

Volkswagen, BMW, Renault, and Daimler Benz advanced between 3% and 5%.  

Resource stocks gained after iron ore prices rose for China delivery. 

Glencore, Antofagasta, and Anglo American surged between 6% and 7%. 

ASM Holding rose 4.2% to 446.52 euros after South Korea based Samsung Electronics reported its strongest June quarter since 2018. 

Nordex SE gained 7.5% to 8.45 euros after the German wind turbine maker said new orders drove total orders to 1.8 GW compared to 1.534 GW a year ago. 

The company received a total of 346 wind turbines for projects in fifteen countries and Europe accounted for approximately 58%, Latin America 31% and North America 11%. 

The strongest individual markets in Europe were Germany, Poland and Spain. 

Lufthansa AG increased 4.7% to 5.77 euros after logistics entrepreneur Klaus-Michael Kuehne increased his stake in the state controlled carrier to 15% from 10%.