Global stocks moved deeper into the red on Thursday after the European Central Bank said it was planning a series of rate hikes from next month to rein in runaway inflation.
The ECB said after its policy meeting that it would raise interest rates for the first time in over a decade in July, bringing the curtain down on the era of cheap money in the single currency area.
While the announcement had been widely anticipated, stock prices in Frankfurt, London and Paris — which had been weaker all morning — closed in the red and yields on eurozone countries’ sovereign bonds moved higher.
On the other side of the Atlantic, Wall Street stocks also traded lower in midday trading.
After refusing to act while other central banks around the world already started tightening monetary policy, ECB chief Christine Lagarde cautioned that the first quarter-point rate hike in July was not expected to have an immediate effect on inflation.
As a first step, the ECB said it would end its massive bond-buying stimulus as of July 1.
The central bank also sharply upgraded its inflation forecasts for this year and 2023 while lowering the economic growth outlook.
Craig Erlam, market analyst at online trading platform OANDA, said that while the ECB took a “hawkish shift”, it “doesn’t come out of today looking particularly good”.
“It’s sat by and watched all year while other central banks have conceded defeat and made this move assuming its situation would be different. The reality is it never was and now it’s left itself a lot to do,” he added.
In foreign exchange, the euro softened against the dollar and pound.
Inflation around the world has soared to the highest levels in decades, fuelled largely by rocketing oil and gas prices.
Energy demand has surged as economies emerge from pandemic lockdowns, while supplies have been disrupted by the invasion of Ukraine by major producer Russia.
Oil prices fell slightly on Thursday.
– ‘Gloomy summer’ –
Traders were also awaiting US inflation data due Friday.
Analysts expect the Federal Reserve to stick to its hawkish path and hike US interest rates by half a point for at least three more meetings this year as it tries to tame American consumer prices.
“Until we reach peak inflation, which will trigger a less hawkish Fed and lower recession odds, it could be a gloomy summer for global stock pickers,” forecast SPI Asset Management’s Stephen Innes.
There was fresh uncertainty over the economic outlook in China as Covid fears linger over the world’s second-biggest economy.
While data showed China’s exports rebounded strongly in May, with factories restarting and supply chains untangling as Shanghai slowly emerged from a gruelling lockdown, the metropolis will Saturday shut a district of 2.7 million people for mass coronavirus testing.
– Key figures at around 1530 GMT –
London – FTSE 100: DOWN 1.5 percent at 7,476.21 points (close)
Frankfurt – DAX: DOWN 1.7 percent at 14,198.80 (close)
Paris – CAC 40: DOWN 1.4 percent at 6,358.46 (close)
EURO STOXX 50: DOWN 1.7 percent at 3,724.45
New York – Dow: DOWN 0.5 percent at 32,752.12
Tokyo – Nikkei 225: FLAT at 28,246.53 (close)
Hong Kong – Hang Seng Index: DOWN 0.7 percent at 21,869.05 (close)
Shanghai – Composite: DOWN 0.8 percent at 3,238.95 (close)
Brent North Sea crude: DOWN 0.2 percent at $123.39 per barrel
West Texas Intermediate: DOWN 0.3 percent at $121.69 per barrel
Dollar/yen: DOWN at 134.06 yen from 134.29 yen late Wednesday
Euro/dollar: DOWN at $1.0657 from $1.0720
Pound/dollar: DOWN at $1.2522 from $1.2535
Euro/pound: DOWN at 85.10 pence from 85.54 pence
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