BOE fallout, UK consumer confidence

Italgas CEO Paolo Gallo says diverse gas supply lines are “fundamental,” as he warns of continued price volatility.

Chris Williamson, chief business economist at S&P Global Market Intelligence, breaks down the latest PMIs figures out of the euro zone.

The sharp fall in Siemens Energy shares Friday as it warned of ongoing problems at its wind turbine unit could impact the broader sector in the long-term, Nicholas Green, head of European capital goods at Alliance Bernstein, told CNBC.

“They can climb back from it, yes, but let’s be clear there’s a 17 billion euros ($18.47 billion) service order book and that is delivering service on installed wind farms and in wind turbines for quite a number of years ahead — five years ahead, sometimes 10-year contracts — and to discover that a handful of your components aren’t working as you planned, that maybe you’ll need to go in and replace those components, that is a very large liability that you’re taking on,” Green said.

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U.K. retail sales figures for May indicate the worst has passed for retailers in the short term, ING developed markets economist James Smith said in a note.

Sales volumes were up by 0.3%, a slowdown from 0.5% the previous month. Non-store retailing sales volumes rose by 2.7%, which the Office for National Statistics attributed to the warm weather as people snapped up outdoor goods and summer clothing online.

“The worst is probably behind us for U.K. retailers, but with the Bank of England poised to hike at least a couple more times, we think the risk of a recession is rising,” Smith said. “A simple mapping of real wage growth against sales points to a very modest rebound in volumes over the coming months.”

Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, said he continued to expect a consumer-led downturn to be avoided, but growth in real expenditure to be modest.

Real disposable incomes will be boosted 0.8% in July by falling energy prices, he said, outweighing a 0.2 percentage point drag from mortgage refinancing at higher rates due to only 30% of households having a mortgage.

“The big unknowns for the near-term outlook for households’ spending are whether higher interest rates finally will spur businesses to reduce employment and whether the household saving ratio will rise sharply, as people replenish their savings and borrowers prioritise paying off debt,” he said.

“Our view is that the latest job market indicators are consistent with employment holding steady and that the saving rate will rise no more sharply than households’ disposable incomes, ensuring that a consumer-led recession is avoided.”

— Jenni Reid

Flash purchasing managers’ index figures published by S&P Global showed a slowdown in euro zone business output to a five-month low of 50.3, nearly falling below the 50 mark which represents a contraction.

Economists polled by Reuters expected a reading of 52.5.

Manufacturing output fell to an eight-month low of 44.6, with services remaining at growth level but slowing considerably from 55.1 to 52.4.

The euro was down 0.9% against the U.S. dollar at 10:50 CEST, and 0.56% lower against the British pound.

The DAX index was the worst-performing major bourse, down 0.6%, as the German PMI came in at 50.8.

German government bond yields fell as investors headed for fixed income. A Reuters update at 9:30 CEST showed the German yield curve inversion hit its deepest level since September 1992.

Two-year bund yields were down 10 basis points to 3.167% as the ten-year yield fell 12 basis points to 2.358%.

The German economy entered a recession in the first quarter, figures published last month showed.

Friday’s open indicated there would be no respite from the week’s sell-off, with the Stoxx 600 index lower by 0.2%.

Germany’s DAX shed 0.55%, as the U.K.’s FTSE 100 and France’s CAC 40 both declined by around 0.3%.

Siemens Energy, which supplies equipment and services to the power sector, scrapped its 2023 profit outlook after a review of its wind turbine unit exposed deeper than expected problems that could cost more than 1 billion euros ($1.1 billion).

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— Reuters

European markets are heading for a lower open Friday.

The U.K.’s FTSE 100 index is expected to open 20.5 points lower at 7,473, Germany’s DAX 102 points lower at 15,874, France’s CAC 32 points lower at 7,163 and Italy’s FTSE MIB 182 points lower at 27,371, according to data from IG.

— Jenni Reid

China’s artificial intelligence evolution is at an “inflection point,” and the Asian giant is catching up with the U.S. in this area, according to Morgan Stanley.

In fact, the bank estimates there’s a $7.4 trillion AI opportunity in China.

It named three Chinese tech stocks which are also listed in the U.S as potential beneficiaries

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— Weizhen Tan

Oil after the larger-than-anticipated interest rate hike from the Bank of England overshadowed crude inventory slides.

Brent futures slipped $3.33, or 4.3%, to trade at $73.79 a barrel. Meanwhile, U.S. West Texas Intermediate crude futures, called WTI for short, dropped $3.41, which equates to 4.7%, to sit at $69.12 per barrel.

The English bank’s hike was top of mind on Thursday, despite news of U.S. supply falling, which surprised analysts.

— Alex Harring

Federal Reserve Chairman Jerome Powell faced multiple questions Thursday about where interest rates are heading, but he said the focus instead should be on how quickly the Fed is moving.

Policymakers, he insisted, are still committed to using rates to bringing down inflation, but are going to move more slowly than they had been during an aggressive run of hikes going back to March 2022.

“I think the data will tell us what to do,” Powell told members of the Senate Banking Committee. “I think the point of our … last meeting was really to moderate the pace of our decision making on this, because you know, it was very important to move quickly last year, and we did. It’s not so important now.”

—Jeff Cox