The UK’s FTSE 100 share index has closed 60 points higher tonight at 7587 points, up 0.8% today.

That’s its highest closing level in a week.

BP gained around 2.5%, lifted by the jump in oil prices today.

Italy’s FTSE MIB has gained around 1.3% today, as bank shares rallied after the new windfall tax was capped.

Here’s CMC Markets’ Michael Hewson on the European stock markets today:

European markets have been in a much more ebullient mood today despite further economic data from China that points to a weakening economy, after headline CPI fell into deflationary territory for the first time since early 2020.

While this comes across as encouraging for inflation trends in Europe, as well as the US, in that it could prompt the end to further rate hikes from central banks here, it does little to paint a positive outlook for a broader China recovery.

Nonetheless markets appear to be trading on the basis that price pressures are likely to ease further, although the best performing sectors are basic resources and energy, with oil prices rising to 9-month highs, and European natural gas prices rising sharply on the back of supply concerns and the prospect of worker strikes at Australian LNG facilities.

In the tech sector, Amazon is in talks to become an anchor investor in the upcoming stock market flotation of British microchip designer Arm.

Energy giant E.On has reported an €8bn (£6.9 billion) increase in its UK sales over the last six months.

PA Media reports:

Sales in the UK rose at breakneck speed, hitting a little under €21bn (£18.1bn), up from €12.8bn (£11bn) a year earlier, the business said.

Adjusted EBITDA – a measure of profit which strips out the impacts of tax and other items – more than doubled in the UK to €839m (£723m).

Across the group adjusted EBITDA was €5.7bn (£4.9bn).

We flagged earlier that UK mortgage rates had only dipped slightly this morning, despite hopes that inflation is easing.

Well, there may be larger moves tomorrow, as three large UK lenders have cut their mortgage costs today.

Nationwide, the second-largest mortgage lender, reduced prices on some fixed products by up to 0.55 percentage points.

HSBC trimmed its costs by as much 0.2 percentage points, while TSB lowered rates by up to 0.4 percentage points. The FT has more details here.

A cautious start to trading in New York sees the Dow Jones industrial average dip by 28 points or 0.08% to 35,286 points.

Rice prices have soared to the highest in almost 15 years in Asia on mounting concerns over global supplies.

Prices jumped as dry weather threatens production in Thailand and after top shipper India banned some exports.

Thai white rice 5% broken, an Asian benchmark, jumped to $648 a ton, the most expensive since October 2008, according to data from the Thai Rice Exporters Association on Wednesday. That brings the increase in prices to almost 50% in the past year, Bloomberg reports.

Don’t tell the Duke brothers, but orange juice futures are at fresh all time-highs this summer.

With supplies dwinding, the Intercontinental Exchange’s frozen concentrated orange juice (FCOJ) futures benchmark has risen to $3.00 a pound, up from $1.76 this time last year.

The FT has more details:

Orange juice futures have surged to fresh all time-highs as a series of hurricanes and the spread of an incurable disease have devastated thousands of acres of citrus crops in the US.

Overall orange juice production in the US is the lowest in “over 100 years”, said Matthew Joyner, chief executive of Florida Citrus Mutual, a trade association representing almost 2,000 growers. “Just over 20 years ago we were producing 240mn boxes, now we’re finishing this season at just under 18mn.”

Over in the US, mortgage demand has been hit by rising borrowing costs.

Mortgage applications dropped by 3.1% last week, new figures show as borrowers were deterred by higher rates.

CNBC has the details:

Mortgage interest rates soared across the board last week, with the rate on the government’s low down payment option increasing to the highest level in 21 years. That hit mortgage demand hard, with total application volume dropping 3.1% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 7.09% from 6.93%, with points rising to 0.70 from 0.68 (including the origination fee) for loans with a 20% down payment. The average rate for jumbo loans hit 7.04%.

More strike news… and train drivers at several rail companies have voted to continue industrial action in their long-running dispute over pay.

Aslef said the results of new ballots for strikes on passenger services in England and on London Underground showed continued support from drivers, PA Media report.

Mick Whelan, general secretary of Aslef, said:

“The results of these new ballots show the determination of our members to win this dispute.

That’s why I am calling on the train companies, and the Government that stands behind them, to do the right thing and return to the negotiating table with a new offer and prevent more disruption to passengers and businesses in Britain.”

Aslef members at Chiltern, East Midlands, Northern and TransPennine voted in favour of continuing with strikes after being reballoted after six months under employment law.

Drivers at c2c were balloted for the first time and also voted heavily in favour.

Drivers at freight operating company Direct Rail Services also voted in favour of industrial action in a separate dispute over pay.

London Underground drivers also backed industrial action in a reballot in another dispute over pay, pensions and conditions.

Finn Brennan, Aslef’s organiser on the Underground, said:

“These huge votes, from the high 90s to 100%, in favour of action, demonstrate just how determined our members are to protect their terms and conditions at work from the effects of the Government’s attack on TfL (Transport for London) funding.

As always, we are prepared to discuss and negotiate, but we will never accept detrimental changes being imposed on Aslef’s members.”

Oil markets have climbed to their highest price in nine months amid growing tensions between Russia and Ukraine in Black Sea, a key route for Russia’s oil exports.

The price of Brent crude reached highs of just over $87 a barrel on Wednesday morning, the highest price since April this year, while US crude prices climbed to $83.43 which is the highest since last November.

The oil price has climbed in part due to concerns that an escalation of the Russia-Ukraine conflict in the Black Sea region could slow Russia’s exports of oil into an already tight global market.

Ukraine’s president, Volodymyr Zelenskiy, told reporters on Tuesday that his country would “pick some targets in order to prevent our waters from being blocked” if Russia continues to dominate the Black Sea.

The Black Sea is a key transit route for Russian exports of oil and oil products.

The risk of disruption has ut oil traders on alert following pledges by OPEC+ heavyweights Saudi Arabia and Russia to cut their supply of oil into the market.

Fresh strikes are set to affect Gatwick airport later this month, as workers take eight days of industrial action, including the August Bank Holiday weekend, in pay disputes, the Unite union has announced.

Unite says the strikes will involve over 230 workers at Red Handling, a ground handling company and Wilson James, which operates the passenger assistance contract at the airport.

Both companies have failed to make offers that meet the workers’ expectations, the union says.

Unite says:

• Red Handling workers are scheduled to begin their first tranche of strike action at 00:01 on Friday 18 August with strikes concluding at 23:59 on Monday 21 August. The second strike will begin on 00:01 on Friday 25 August, ending at 23:59 on Monday 28 August.

• The strikes at Wilson James will begin at 00:01 on Friday 18 August ending at 23:59 on Sunday 20 August and then from 00:01 on Tuesday 22 August ending on Thursday 24 August at 23:59.

Red Handling is responsible for ground handling for Norse Atlantic, Norwegian, Delta, TAP Air Portugal and Saudi. During the first four-day strike action at Red Handling, Unite believes that 216 flights could be disrupted or delayed, affecting approximately 45,000 passengers.

Previous strikes at Gatwick, involving staff at other companies, were cancelled after workers received higher pay offers.

Economists are hopeful that China’s drop into deflation last month could lead to lower price pressures in the West.

Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc, has said deflation in China “should help inflation in the US and Europe to moderate.”

But, Tom Hopkins, portfolio manager at BRI Wealth Management, argues that European companies should be concerned by ths move:

“China moving into a deflationary state bucks the trend of most western nations, which have been struggling with the opposite problem of high inflation. The move into deflation for the world’s second largest economy is a clear sign of weakening, something that’ll spark concern for EU companies and economies of which China is one of the most important trading partners.

“In addition, a lack of clarity on Beijing’s planned stimulus measures will mean a mixed appetite for European markets. Chinese policymakers have a difficult balancing act with calls for stimulus whilst battling a slowdown in its property sector and a weakening in trade and consumer confidence.”

The Italian government’s partial u-turn on plans for a new banking windfall tax will probably allow lenders to keep their promises on shareholder returns, analysts believe.

That’s why Italian banking shares are recovering some of yesterday’s losses today (see earlier post).

Bloomberg reports:

The finance ministry said late Tuesday that the levy won’t exceed 0.1% of a firm’s assets, after Deputy Prime Minister Matteo Salvini’s announcement of a 40% tax on lenders’ extra profits the day before wiped out $10bn from Italian banks’ market value.

The clarification meant it was now “more sustainable” for lenders to fulfill their guidance on an increase in distributions for 2023, Equita Sim Spa analyst Andrea Lisi said.

“Given the contained magnitude of the tax and the high starting CET1 ratio, we believe the measure would not impair banks’ capital return policies,” Andrea Filtri, an analyst at Mediobanca SpA, said in a note on Wednesday.

Stephen Millard, deputy director for macroeconomic modelling and forecasting at the National Institute of Economic and Social Research (Niesr), has called for the UK government to invest more in public infrastructure.

Following this morning’s forecast that the UK economy won’t reach its pre-Covid-19 levels until summer 2024, Millard told BBC Radio 4’s Today programme that targeted investment was the long-term answer.

Millard explained:

“I think the Government needs to think beyond the next few years.

“By investing in public infrastructure, in education, in healthcare, in the green transition, the result will eventually be higher growth.

“That’s the thing about public investment, but it takes a while – at least a couple of parliaments.

“We’re not going to see it quickly but we are going to see it in the end.”

He also cautioned that tax cuts can only supercharge growth “in the short run” and “create their own problems”.

Back in Milan, bank shares are holding their earlier gains after Italy’s government dialled back its windfall tax.

Intesa Sanpaolo areup 3.1%, Banco BPM have gained 3.6% and UniCredit is up 4.2%, helping keep the broader FTSE MIB index up by 1.9%.

Ankit Gheedia, head of equity and derivatives strategy at BNP Paribas, says:

“We’ve had some watering down of the policy from yesterday and what it looks like is the impact should be less severe, but still a tax, nonetheless.”

Europe’s Stoxx 600 shares indes has risen to its highest level in a week, lifted by Italian banks after Rome said it would cap its new windfall tax.

Shares have risen in London in morning trading, with the FTSE 100 index gaining 56 points or 0.75% to 7583 points.

Victoria Scholar, head of investment at interactive investor, has the details:

“European markets are trading higher with the FTSE MIB in Italy outperforming. Italian banks are clawing back some of yesterday’s declines after the government watered down its windfall tax plans. Unicredit, Intesa Sanpaolo and BPER Banca are all trading higher by over 2%.

In the UK, Coca-Cola HBC is near the top of the FTSE 100 after raising its revenue guidance while Flutter is towards the bottom after its half-year results. The owner of Paddy Power and Betfair is planning to list in the US possibly later this year or early next year.

A leading think tank, the National Institute of Economic and Social Research has warned there is a 60% chance of a UK recession at the end of 2024. It pointed to Brexit, the pandemic, and the war in Ukraine as factors contributing to five years of ‘lost’ economic growth with ‘elevated housing, energy and food costs’ taking their toll. Second quarter UK GDP figures are due on Friday at 7am.

UK mortgage rates have dipped a little this morning, but remain sharply above their levels a few months ago.

Data provider Moneyfacts says:

• The average 2-year fixed residential mortgage rate today is 6.83%. This is down from an average rate of 6.84% on the previous working day.

• The average 5-year fixed residential mortgage rate today is 6.34%. This is down from an average rate of 6.35% on the previous working day.

British housebuilder Bellway said it would build fewer homes in the current fiscal year, as rising interest rates cool demand.

In its latest financial results, Bellway says the recent increase in mortgage rates through June and July 2023 has resulted in a weaker trading environment, adding:

In the current financial year, given the level of the order book and prevailing low reservation rates, legal completions are expected to decrease materially.

Bellway also reported that revenues dipped to £3.4bn in the year to the end of June, down from £3.5bn a year earlier. Its profit margin narrowed, due to rising build costs and overhead inflation.

Bellway reports that customer demand during the year was affected by the volatility in mortgage interest rates.

Jason Honeyman, Bellway’s chief executive, told shareholders:

The backdrop of macroeconomic uncertainty and cost of living pressures affected consumer demand during the year and, given affordability remains constrained by higher mortgage interest rates, underlying trading conditions are likely to remain challenging in the near term.

Faced with this slowdown, Bellway is also reducing headcount across the company.

NIESR’s economic forecasts suggest Rishi Sunak will fight the next election against a backdrop of an economy suffering from five years of lost growth and a widening of the gap between the prosperous and less well off parts of Britain.

Our economics editor Larry Elliott explains:

The National Institute of Economic and Social Research (NIESR) said it would take until the third quarter of 2024 for UK output to return to its pre-pandemic peak and that there was a 60% risk of the government going to the polls during a recession.

In its quarterly update on the state of the economy, the NIESR said the poorest tenth of the population had been especially hard hit by Britain’s cost of living crisis and would need an income boost of £4,000 a year to have the same living standards they enjoyed in the year before Covid-19 arrived.