BoE Expected to Hold Rates as Services Inflation Stays High

The Bank of England is expected to maintain interest rates at 5.0% due to persistent services inflation, currently running at 5.6%. European stocks, including the EUROSTOXX 50 and FTSE futures, are set to open higher, buoyed by positive sentiment following the Federal Reserve's substantial rate cut.

Equities

The FTSE 100 fell 0.7% on Wednesday, underperforming other European markets as investors scaled back expectations for an interest rate cut from the Bank of England following UK inflation data. Consumer price inflation held steady at 2.2% in August, while services inflation rose to 5.6%, adding to concerns about persistent inflationary pressures. The stronger pound, which rose 0.3% against the dollar after the inflation report, weighed on the FTSE 100's export-heavy companies. Among individual stocks, Reckitt Benckiser rose 1.2% following a media report that the company is in early discussions to sell its homecare assets.

Across the Atlantic, US markets closed slightly lower after a volatile session following the Federal Reserve's decision to cut interest rates by 50 basis points. The S&P 500, Dow Jones, and Nasdaq Composite all posted modest losses of 0.29%, 0.25%, and 0.31%, respectively, after hitting intraday highs.

In company news, Intuitive Machines surged 38.3% after securing a $4.8 billion contract with NASA for navigation services. Meanwhile, small-cap stocks outperformed, with the Russell 2000 gaining 0.04% on the day, as lower interest rates are expected to benefit smaller firms more directly. Regional banks also saw gains, with the KBW Regional Bank Index rising 0.46%, recovering from recent pressures due to higher interest rates. Trading volumes on US exchanges were higher than average, with 11.63 billion shares changing hands compared to the 10.82 billion average over the past 20 sessions.

European shares also saw declines, with the pan-European STOXX 600 closing 0.5% lower as investors awaited the Fed's rate decision. Shares of Italian spirits group Campari fell 7.5% following the sudden resignation of its CEO, while UK inflation data also kept pressure on British markets, limiting risk appetite.

Forex & Commodities

The US dollar rose, reversing earlier losses after the Federal Reserve's larger-than-expected half-point interest rate cut. Following the cut, the dollar gained 1.2% against the yen, reaching 143.95, before settling at 143.15. The dollar index also edged higher to 101.03, recovering from a one-year low. Meanwhile, the British pound held at $1.3208, slightly down after touching a 19-month high the previous day following UK inflation data.

Gold prices climbed 0.5% to $2,571.40 per ounce after hitting a record $2,599.92 on Wednesday, supported by the Fed’s interest rate cut. Traders expect further gains for gold, potentially pushing prices between $2,640 and $2,700 by the year’s end. Silver also saw a 2% rise to $30.67 per ounce.

Oil prices were boosted by the Fed's decision, with Brent crude futures rising 0.5% to $74.01 a barrel and WTI futures up 0.3% to $71.15. However, weak demand from China, where refinery output has slowed for a fifth consecutive month, continued to weigh on the market.