Yahoo Finance FTSE higher and Wall Street mixed amid UK recession warning by ex-BoE governor
A look at how the major markets are performing on Thursday
European stocks pushed higher on Thursday, while Wall Street was mixed, after a former Bank of England governor warned that the central bank risks pushing the UK into a recession.
In London, the FTSE 100 (^FTSE) rose 0.8% on the day extending yesterday’s bounce, while the CAC (^FCHI) climbed 0.7% in Paris, and the Frankfurt DAX (^GDAXI) was 0.5% up.
Across the pond, the S&P 500 (^GSPC) fell 0.3% and the tech-heavy Nasdaq (^IXIC) dipped 1.2% by the time of the European close. The Dow Jones (^DJI) managed to push 0.8% higher in New York.
It came as Mervyn King, who served as governor for a decade until 2013, said Britain could plunge into a recession if the BoE hikes rates too far.
“The risk is that having ignored money when inflation was rising, they’re now ignoring money when inflation is actually about to fall. What we could see, therefore, is a mistake in both directions over a period of three or four years," he said in an interview with Merryn Somerset Webb on the Bloomberg podcast Merryn Talks Money.
“If they carry on for the next six months or so tightening monetary policy, it could well be that they generate both a recession as well as a sharp fall in inflation."
Financial markets expect the Bank to increase the base rate from the current level of 5% on 3 August by 0.25 percentage points. It has already increased interest rates at 13 consecutive meetings.
Elsewhere, wheat prices rose more than 8% on Wednesday, the biggest daily rise since 2012, while corn prices climbed more than 5%. Wheat futures in Chicago rose a further 1% today.
Russia has carried out heavy air strikes on Ukraine’s grain stores and port infrastructure in the Black Sea port of Odesa. The attack on the port city of Mykolaiv injured 18 people on Wednesday night, it has been reported.
The Office for National Statistics (ONS) revealed on Wednesday that UK food price inflation cooled from 18.4% to 17.4% in the year to June, but the rising price of wheat now threatens to push up food prices on staples such as bread, cereals, and flour.
“More uncertainty has arisen from the geopolitical front after Russia decided to end the safe passage of Ukrainian crops by sea, which revives fears of a global food crisis, denting investors’ risk appetite further," Pierre Veyret, technical analyst, and Ricardo Evangelista, senior analyst at ActivTrades, said.
"However, the situation isn’t threatening yet for stocks as bull traders seem strong or numerous enough to defend support levels on most benchmarks, with real estate, energy and basic material shares preventing the market from dipping lower.
"Investors may wait for further macro developments brought by today’s US initial jobless claims, Philadelphia Fed index, existing home sales, and another slew of corporate results from Johnson & Johnson, Publicis Groupe, Maurel & Prom and others.”
Watch: How does inflation affect interest rates?
Download the Yahoo Finance app, available for Apple and Android.
