A dramatic day of reckoning is unfolding in European markets, as a shocking corporate collapse sends a chill through London while the broader continent holds its breath ahead of a pivotal week of economic tests.
The session is a tale of two markets: one of quiet, nervous anticipation, the other of outright carnage.
The most dramatic story is the brutal implosion of shares in UK retailer WH Smith. The stock plunged as much as 33% at the open after it slashed its profit guidance for North America.
The catastrophic drop represents the company’s biggest single-day decline on record, dragging its shares to their lowest point since the darkest days of the pandemic in March 2020.
The collapse single-handedly weighed on the mid-cap FTSE 250 index, which opened down 0.2%.
A transatlantic tug-of-war
This localized disaster is playing out against a backdrop of global indecision. While London’s blue-chip FTSE 100 managed to eke out a small gain of 0.1%, outperforming its continental peers, the mood is far from bullish.
Markets are caught in a transatlantic tug-of-war, digesting a positive session in most of Asia that defied a tech-led selloff on Wall Street on Wednesday.
Now, investors are turning their attention to a crucial domestic health check, with preliminary purchasing managers’ index (PMI) data from the euro zone and the UK set to provide a fresh indication of the region’s economic vitality.
The shadow of the Fed looms large
The true source of the market’s anxiety, however, lies across the Atlantic. Minutes from the Federal Reserve’s July meeting, published Wednesday, have given investors a serious case of the jitters.
The notes revealed that policymakers are growing worried about the state of the labor market and inflation, and, in a sign of a deepening internal divide, Fed Governors Christopher Waller and Michelle Bowman both dissented against the decision to hold rates steady.
This marks the first time two voting Fed officials have done so since 1993, signaling a significant fracture in the central bank’s consensus.
This internal conflict has raised the stakes for the Fed’s annual economic symposium in Jackson Hole, Wyoming, which begins today.
The entire financial world will be hanging on every word from Fed Chair Jerome Powell when he speaks on Friday, desperate for clues on the future path of interest rates.
Despite the growing uncertainty and the rare dissent, traders are still clinging to hope.
The CME’s FedWatch tool shows that futures markets are pricing in about an 82% likelihood of the central bank cutting interest rates at its next meeting in September.
That conviction will face its ultimate test in the mountains of Wyoming.
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