European shares struggle for direction, sterling recovers after BoE warning

LONDON, Oct 12 (Reuters) – European shares were flat in early trade on Wednesday, while sterling recovered after hitting a 13-day low overnight and the Bank of England reiterated that it would end its emergency bond purchases over the weekend. .

Global stock markets have fallen sharply in recent days, weighed down by growing fears of an economic slowdown amid warnings from the IMF and the World Bank.

Asian stocks were stuck at two-year lows, weighed down by signs that China will continue with its tough COVID-19 policies.

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The MSCI world stock index, which tracks stocks in 47 countries, was at a two-year low in the previous session at 0846 GMT. (.MIWD00000PUS).

Europe’s STOXX 600 fell 0.1%, the last four consecutive sessions of declines (.STOXX).

“Over the past few days we have seen a very rapid decline in stock markets, obviously associated with heightened recessionary fears,” said Axel Rudolph, market analyst at IG Group.

“I think we’re seeing some short-covering, and I wouldn’t be surprised if that feeds into the US markets later today, with people positioning themselves more neutrally than the CPI data on Thursday.”

US producer price data at 1230 GMT is expected to keep the central bank on course for rate hikes. Consumer price data (CPI) is due on Thursday.

The British pound fell to a 13-day low overnight after Bank of England Governor Andrew Bailey said the central bank has three days to end its emergency for pension funds and other investors hit by a rise in UK gilt yields. Bond Purchase Scheme. Sterling fell more than a cent against the dollar after the comments.

But the BoE has privately signaled to lenders that it is prepared to extend support beyond Friday’s deadline if necessary, the Financial Times reported.

By 0849 GMT, the pound was up 0.8% on the day at $1.1045.

Market distortion

Britain’s economy shrank unexpectedly in August, GDP data showed.

IG’s Rudolph said the crisis in UK markets, which began when the British government announced “mini-budget” fiscal plans on September 23, was contributing to broader negative market sentiment.

“It’s another nail in the coffin in terms of sentiment and market sentiment, which has really taken a hit over the last few days,” he said.

Former US Treasury Secretary Larry Summers criticized the British government’s policy and communications, speaking at an investment conference in Sydney.

UK gilt yields rose across a range of maturities, with 2-year yields seeing a sharp rise.

The euro was steady at $0.97075. Euro zone government bond yields also rose, tracking weakness in the UK gilts market.

The US dollar index was down about 0.1%. Overnight, the dollar surpassed the 146-per-yen level for the first time in 24 years, prompting Tokyo officials to pledge action if necessary.

Minutes of the central bank’s latest policy meeting are also due to be released later in the session.

The International Monetary Fund’s chief economist said on Tuesday that central banks’ fight against inflation could take two more years, with unemployment rising and living standards falling for many around the world.

On Monday, the president of the World Bank and the managing director of the IMF warned of a growing risk of recession.

The war in Ukraine also weighed on market sentiment. The G7 pledged to support Kyiv “for as long as it takes”.

Oil prices recovered some of their losses, having fallen 2% in the previous session.

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Report by Elizabeth Howcroft; Editing by Alex Richardson

Our Standards: Thomson Reuters Trust Principles.

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