(Bloomberg) — European stocks fluctuated after the European Central Bank increased its key lending rate by a historic 75 basis points to combat inflation, as shares in banks advanced. US futures slipped.
(Bloomberg) — European stocks fluctuated after the European Central Bank increased its key lending rate by a historic 75 basis points to combat inflation, as shares in banks advanced. US futures slipped.
Europe’s Stoxx 600 Index swung between gains and losses as banks climbed following the ECB move, while retailers slumped. Contracts on the S&P 500 and the Nasdaq 100 fell less than 0.5% following a near-2% advance in the underlying gauges on Wednesday.
The pound pared a decline as UK Prime Minister Liz Truss outlined a plan to provide relief on rising energy costs to British households and businesses, which she said is expected to curb inflation. There has been widespread speculation that the government’s aid proposals will require further debt sales to fund it that could drive up bond yields.
A dollar gauge was steady as traders assessed comments from Federal Reserve officials on their commitment to fighting inflation. Treasuries gained, with the 10-year yield falling to 3.22%. Applications for US unemployment insurance fell for a fourth straight week to the lowest since May, suggesting demand for workers remains healthy despite an uncertain economic outlook.
The ECB said it expects to tighten at the next several meetings and Thursday’s unprecedented policy step underlines growing alarm as price pressures broaden beyond energy, and as the euro weakens. Traders’ focus will turn later to a speech due from Fed Chair Jerome Powell for more insights on the outlook for US interest rates.
“The ECB has hiked by 75 basis points for the first time in its history, and has delivered the message that more hikes will be needed at upcoming meetings, setting the stage for an almighty game of catch-up with the Federal Reserve,” said Chris Beauchamp, chief market analyst at IG Group. “This is a definite attempt to send a message to markets, but the accompanying downgrade of GDP estimates sends another message that says it will be a tough winter for the eurozone.”
Fed officials reiterated their determination to get inflation under control. Vice Chair Lael Brainard said interest rates will need to rise to restrictive levels, while cautioning risks would become more two-sided in the future.
Meanwhile, Goldman Sachs Group Inc. economists lifted their forecast for the pace of Fed interest rate increases, expecting the Fed to hike by 75 basis points this month and 50 basis points in November, up from previous forecasts of 50 basis points and 25 basis points respectively. They are tipping a 25 basis points move in December.
The Fed’s Beige Book report said US economic expansion prospects were weak, while adding that price growth showed signs of decelerating.
US stocks could slide a further 25% if the economy tips into a recession, with risks to a sustained equity rally mounting, according to Deutsche Bank AG strategists. With company profits set to drop, stock valuations still high and recession risk looming, the fundamental picture for stocks is challenging, the strategists said.
Elsewhere, oil trimmed a sharp slide this week sparked by demand risks from monetary tightening and China’s Covid travails — the megacity of Chengdu extended a weeklong lockdown in most downtown areas.
Gold futures wavered, while Bitcoin held above the $19,000 level.
What to watch this week:
- Fed Chair Jerome Powell due to speak, Thursday
- Chicago Fed President Charles Evans and his Minneapolis counterpart Neel Kashkari due to speak, Thursday
- EU energy ministers extraordinary meeting on emergency intervention in electricity markets, Friday
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Some of the main moves in markets:
Stocks
- Futures on the S&P 500 fell 0.3% as of 8:41 a.m. New York time
- Futures on the Nasdaq 100 fell 0.5%
- Futures on the Dow Jones Industrial Average fell 0.1%
- The Stoxx Europe 600 fell 0.2%
- The MSCI World index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0002
- The British pound fell 0.1% to $1.1520
- The Japanese yen fell 0.1% to 143.93 per dollar
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.25%
- Germany’s 10-year yield advanced five basis points to 1.62%
- Britain’s 10-year yield advanced two basis points to 3.05%
Commodities
- West Texas Intermediate crude rose 0.5% to $82.34 a barrel
- Gold futures were little changed
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