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European equities bounce back as energy stocks recover

It’s been a big week for central banks, but it’s a recovery among energy stocks that is setting the pace on Friday’s markets.

What you need to know

  • UK equities find support after hawkish BoE sell-off
  • Yen slips after Bank of Japan holds rates
  • Oil prices steady after 2.5 per cent drop over the week
  • Gold holds around three-week low

A big week for central banks is ending with the BoJ in the spotlight.

The Bank of Japan, which is seeking to avoid speculation about an early exit from stimulus, held its main policy rate steady at minus 0.1 per cent and stuck to its pledge to keep the yield on 10-year Japanese government bonds around zero. Tokyo equities led their Asian peers higher after the announcement.

UK stocks are recovering after news on Thursday of three hawkish votes on the Bank of England’s Monetary Policy Committee put heavy pressure on domestic stocks. The mid-cap FTSE 250 is recovering after a fall of more than 2 per cent over the previous session, one of its biggest losses since the shock of the Brexit vote. The FTSE 100 is following the same pattern.

The dollar index is holding around its highest level since mid-May at the end of the week in which the Federal Reserve lifted rates for the fourth time since the financial crisis, drawing investors back into the dollar.

The Euro Stoxx 600 is up 0.6 per cent, with the Xetra Dax 30 in Frankfurt up 0.5 per cent and the FTSE 100 up 0.4 per cent. Energy stocks are finding support, having been under heavy pressure tracking weaker crude prices. Consumer and financial stocks are also higher.

Tokyo’s Topix index is up 0.5 per cent and Hong Kong’s Hang Seng is 0.3 per cent higher, helped by stronger financials, while the Shanghai Composite is down 0.2 per cent.

The dollar is weaker against its European rivals, although strength for the world’s reserve currency in Asia is helping the dollar index rise 0.1 per cent to 97.479.

The pound is up 0.1 per cent at $1.2774 and the euro is also 0.1 per cent higher at $1.1154.

The yen is off 0.1 per cent at ¥111.09 after the Bank of Japan’s rate call.

Oil prices are down by about 2.5 per cent after a choppy week during which news of higher output from Opec hit prices, but are now finding some support.

Brent crude is up 0.2 per cent on the day at $47.03 and West Texas Intermediate, the US market, is also up 0.2 per cent at $44.54.

Mike Bell, global market strategist, JPMorgan Asset Management, says:

Markets appear to be pausing for breath, particularly towards the end of a strong first half of the year.

A gradual tightening of monetary policy from the US and Europe should put upward pressure on bond yields in the coming months. Business surveys suggest the growth outlook should remain healthy in most parts of the world over the rest of this year.

The rate of improvement is likely to slow though, which could cause a brief period of consolidation for equity markets before resuming on an upward path, supported by earnings growth.