LONDON (Reuters) - European shares inched up on news that the euro zone had emerged from recession on Wednesday, while sterling jumped against the dollar as robust jobs data cast doubt on the Bank of England’s pledge to keep interest rates low.
Financial markets though were mostly subdued and confirmation that the euro zone’s 18-month-long recession was finally over had been widely expected, limiting share market gains.
U.S. stock index futures pointed to a flat open on Wall Street. .EU.N
Sterling was the main mover, hitting a high of $1.5507 when new data showed a sharp drop in jobless benefit claims in July and minutes from the central bank’s last meeting revealed one policymaker had voted against a historic move to tie future interest rates to unemployment.
Governor Mark Carney outlined the BoE’s flagship policy - which will see rates kept low until joblessness falls to 7 percent, subject to certain safeguards including inflation staying in check - on August 7 after a meeting of the bank’s nine policymakers.
The minutes and stronger labor market data prompted money market traders to price in a greater chance of a rate hike in the bank’s base rate in two years - a year earlier than the BoE has signaled.
“Before the ink is hardly dry on the forward guidance document there is someone saying they don’t like the idea,” said Brian Hilliard, UK economist at Societe Generale.
“If the numbers improve, the market will question the limits of the time horizon of forward guidance out to 2016.”
The UK’s main share index, the FTSE 100 .FTSE dipped 0.1 percent but volumes were only around one-fifth of their daily average and the index remained well within its recent trading range.
The euro gained initially in reaction to stronger-than-expected German and French GDP data, which reinforced expectations the currency bloc’s economy had grown after six quarters of contraction.
The European Union’s statistics office later confirmed a 0.3 percent expansion in the three months to June, after which the euro drifted back to be 0.1 percent lower at $1.3250.
Bailed-out Portugal posted the best growth in the region with a 1.1 percent expansion in the second quarter, but it was Germany’s 0.7 percent quarterly growth rate, its fastest in over a year, which powered the recovery.
“The euro zone has been hauled out of recession and Germany has done the lion’s share of that,” said Andreas Scheuerle, economist at Dekabank.
The euro zone’s blue chip Euro STOXX 50 index .STOXX50E was up 0.2 percent though it is near the highest levels for the year, after six weeks of gains.
Prices for 10-year German government debt did not move much after the data, though as traders adjusted positions after a slump in demand at a subsequent bond auction, yields did creep higher to around 1.81 percent. <GVD/EUR>
The dollar stayed broadly firm following forecast-beating U.S. retail sales data on Tuesday, which increased the prospects of the Federal Reserve scaling back its stimulus as early as next month.
Against a basket of currencies, the dollar stood near a one-week high, while against Japan’s currency it was little changed at 98.13 yen.
Yields on benchmark U.S. 10-year Treasuries, which have been supporting the U.S. currency, edged down to around 2.718 percent, just off Tuesday’s near two-year peak of 2.72 percent.
Investors have largely positioned for the Fed to start tapering its $85 billion a month of bond purchases soon, but are looking for more data to support that view.
Talk about the Fed’s next step escalated on Tuesday when Atlanta Fed President Dennis Lockhart said it was too early to detail plans to taper, while at the same time not ruling out the possibility of it starting next month. <FED/>
His suggestion that any move would be neither nor drastic boosted sentiment in U.S. stock markets that carried into Asian trade, helping Japan’s benchmark Nikkei stock average .N225 to finish at a one-week high.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was little changed though with Hong Kong markets closed due to a typhoon.
The evidence of improving global growth from the latest European and U.S. data helped copper gain 0.5 percent to trade near a nine-week high of $7,317 a tonne.
However, concerns about the Fed curbing its commodity-friendly stimulus are limiting gains with gold recovering slightly to $1,324.85 an ounce and Brent crude stuck just above $109 a barrel.
Editing by Catherine Evans and Susan Fenton