AFP

Stock markets 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 tame runaway inflation in the single currency area.

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 eurozone’s era of cheap money.

While the announcement had been widely anticipated, stock prices in Frankfurt, London and Paris — which had been weaker all morning — extended their losses and yields on eurozone countries’ sovereign bonds moved higher.

“Inflation expectations are higher than anticipated, which is worrying the markets and explains the rise in long-term rates,” said Guillaume Truttmann, bond trader at Meeschaert Amilton.

Over on the other side of the Atlantic, Wall Street also opened lower. 

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 next year while lowering the economic growth outlook.

But for Clemens Fuest, head of the Ifo economic think tank in Munich, the move comes too late. 

“It is the right step, but it comes too late,” he said. “It was not acceptable that, with an inflation rate of eight percent, the ECB stuck to negative interest rates and asset purchases.” 

In foreign exchange, the euro softened against the dollar and pound.

Inflation around the world has reached the highest levels in decades, fuelled largely by soaring oil and gas prices.

Energy demand has surged as economies emerge from pandemic lockdowns, while supplies have been hit 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 bring down 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.

“There are lingering concerns that China’s brisk recovery could be a false dawn given that the zero-Covid strategy is staying firmly in place and that could mean rolling lockdowns will continue,” noted Hargreaves Lansdown analyst Susannah Streeter.

– Key figures at around 1340 GMT –

London – FTSE 100: DOWN 1.1 percent at 7,506.85 points

Frankfurt – DAX: DOWN 1.6 percent at 14,210.49

Paris – CAC 40: DOWN 1.5 percent at 6,351.45

EURO STOXX 50: DOWN 1.7 percent at 3,724.65

New York – Dow: DOWN 0.3 percent at 32,806.43

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 0.5 percent at $122.94 per barrel

West Texas Intermediate: DOWN 0.8 percent at $121.11 per barrel

Dollar/yen: DOWN at 133.70 yen from 134.29 yen late Wednesday

Euro/dollar: DONW at $1.0698 from $1.0720 

Pound/dollar: UP at $1.2548 from $1.2535

Euro/pound: DOWN at 85.24 pence from 85.54 pence

burs/spm/lth

Prime Minister Boris Johnson on Thursday sought to reset his embattled leadership with vows to tackle Britain’s cost-of-living crisis, including contentious new measures to boost home ownership.

After narrowly surviving a no-confidence vote among his own Conservative MPs on Monday, Johnson is under pressure to turn the page on a series of scandals including lockdown-breaching parties in Downing Street.

In a speech in Blackpool, northwest England, he promised new reforms “to help people cut costs in every area of household expenditure — from food to energy to childcare to transport and housing”. 

“This government is on the side of the British public in coping with those pressures,” Johnson insisted.  

The scale of the inflationary crisis hitting millions of Britons was underlined as the price of filling up the average family car topped £100 ($125) for the first time, according to the RAC motoring group.

RAC spokesman Simon Williams called it “a truly dark day” for hard-pressed drivers, and urged the government to slash sales tax on petrol and diesel.

Johnson said much of the crisis was caused by factors beyond the government’s control, such as the impact of the Covid pandemic and the war in Ukraine.

But with two difficult by-elections coming up this month, unhappy Tory MPs want bolder measures including tax cuts after 40 percent of them voted against Johnson on Monday.

The Organisation for Economic Co-operation and Development (OECD) has warned that Britain must cut taxes or raise spending, forecasting it will suffer the developed world’s weakest economic growth next year.

Johnson did not promise any such cuts in Blackpool, although he and his finance minister Rishi Sunak are working on another tax-focussed speech for the coming days. 

Johnson did warn against a “wage-price spiral” by workers, and signalled no compromise with Britain’s biggest rail union, which is planning to shut down the train network this month to press wage demands.

– Back to the 80s –

Updating a signature policy of 1980s predecessor Margaret Thatcher, Johnson’s speech detailed a plan to enable more low-income renters to buy their own social housing in England.

Senior minister Michael Gove told Sky News that “home ownership is not just good for individuals, it’s good for society overall”.

He vowed the measures would help redress a crippling shortage in housing stock that has seen both purchase and rental prices rocket well out of reach of many Britons, especially younger adults.

But the opposition Labour party noted that the plan would need billions in extra money, which Gove admitted was not on offer, relying instead on existing funding at a time when the Treasury is already trying to rein in government spending.

“By their own reckoning, this will help a few thousand families a year,” senior Labour MP Lisa Nandy told BBC radio.

“For those families that will be very welcome,” she said, while warning it could make “the housing crisis worse for everybody else”.

The government plan focusses on making it easier for benefit claimants to save towards a mortgage deposit. 

But it said little about building new homes in England, which is often hampered by local planning objections.

Housing policy expert Toby Lloyd doubted the plan would have much effect.

“I’d be very surprised if it happens in anything like the scale they expect, and if it does I don’t expect it to have that much impact,” he told BBC radio.

– Fight with EU –

Under current Conservative party rules, Johnson cannot be challenged again for a year, which leaves little time for any new leader to emerge before the next general election due by 2024.

But Johnson’s Tory enemies still appear to be manoeuvring, with reports that he faces “vote strikes” to paralyse the government’s legislative agenda. 

Such tactics hurt Theresa May’s three-year stint in Downing Street, before she was brought down in 2019 by Johnson and his allies over how to execute Britain’s exit from the European Union.

Johnson is set to launch another counter-offensive on the Brexit front, by introducing legislation next week to rewrite a pact with the EU governing trade with Northern Ireland, unless Brussels agrees to changes.

Gove denied the prime minister was seeking to appease Brexit hardliners on the Tory backbenches after this week’s vote.

The European Central Bank on Thursday said it would raise interest rates for the first time in over a decade next month to combat runaway inflation, bringing the curtain down on the eurozone’s era of cheap money.

ECB governors, exceptionally meeting in Amsterdam instead of Frankfurt, provided markets with an unexpectedly precise statement setting out their path to monetary policy normalisation after years of ultra-low rates and easy credit.

As a first step, the ECB said it would end its massive bond-buying stimulus as of July 1.

The bank’s governing council then plans “to raise the key ECB interest rates by 25 basis points” at its next meeting on July 21, the ECB said in a statement.

It will raise rates again in September, with the size dependent on the economic outlook.

The last time the ECB hiked rates was in 2011.

“The ECB officially ends its long era of unconventional monetary policy,” said ING bank economist Carsten Brzeski.

Pressure had been growing on the ECB to take tough action after other major central banks like the US Federal Reserve and the Bank of England already moved to rein in prices with aggressive rate hikes. 

Inflation in the 19-nation euro area rose to a record 8.1 percent in May, well above the ECB’s two-percent target.

The surge has largely been driven by the war in Ukraine, which has pushed up the cost of energy, food and raw materials around the globe.

The ECB lowered its eurozone economic growth forecast while raising its projections for inflation.

“High inflation is a major challenge for all of us,” the ECB said in a statement.

Attention now shifts to ECB chief Christine Lagarde’s afternoon press conference, where she will be grilled about the ECB’s next moves.

– ‘Dampened growth’ –

The biggest challenge facing Lagarde right now is finding the right balance between raising borrowing costs to cool inflation, without jeopardising the eurozone’s already stuttering economy.

Underscoring those worries, the ECB slashed its growth outlook for the 19-nation club to 2.8 percent in 2022 and 2.1 percent in 2023, from 3.7 and 2.8 percent previously.

The war in Ukraine “is disrupting trade, is leading to shortages of materials, and is contributing to high energy and commodity prices,” it said, adding that “these factors will continue to weigh on confidence and dampen growth, especially in the near term.”

The July 1 end of its bond-buying scheme will draw a line under the last in a series of debt-purchasing measures worth a total of around five trillion euros ($5.4 trillion) since 2014.

Scrapping the scheme paves the way for what Lagarde has called a “lift off” in rates.

Of the ECB’s three main rates, the so-called deposit rate currently stands at minus 0.5 percent — meaning lenders pay to park excess cash at the bank.

Lagarde has said the ECB aims to exit eight years of negative rates by the end of September.

“Today’s decision shows it’s managed to find a compromise between the doves and the hawks,” Brzeski said. 

“A 50 basis point rate hike in July seemed to be fended off by opening the door for 50 basis points in September.”

– Strong labour market –

The size of September’s hike will depend to a large extent on how the outlook for the economy changes.

Despite unveiling a downgraded forecast for economic growth on Thursday, the ECB expressed optimism over the longer term outlook.

“Once current headwinds abate, economic activity is expected to pick up again,” it said.

“The conditions are in place for the economy to continue to grow on account of the ongoing reopening of the economy, a strong labour market, fiscal support and savings built up during the pandemic.”

On inflation, the ECB said it expected consumer prices to soar to 6.8 percent in 2022, up from 5.1 percent in its previous forecast.

Inflation is seen easing to 3.5 percent in 2023 and 2.1 percent in 2024 — both also higher than earlier estimates.

“These projections indicate that inflation will remain undesirably elevated for some time,” it said.

French prosecutors are investigating claims that officials at a nuclear power station covered up incidents of malfunction at an ageing plant, a source close to the probe told AFP on Thursday.

The move follows a legal complaint filed by a whistleblower, a former engineer at the Tricastin power station in the southeast of the country.

In his complaint to police in October 2021 targeting nuclear plant operator EDF, the engineer, whose identity was not given, said he had repeatedly alerted the company to the incidents and also written to the environment minister.

Events that the nuclear operator failed to declare to the national safety agency ASN, or played down, include an unexplained power surge at one of the reactors in 2017 and flooding inside the station the following year, according to the engineer.

An investigating magistrate in the southern port city of Marseille is now probing the power station for fraud and “endangering the lives of others”, the legal source said.

Other suspected violations include damage to the environment by leakage of toxic substances, obstructing checks by nuclear inspectors and workplace harassment of the engineer, who says he was sidelined after sounding the alarm.

France, which derives around 70 percent of its electricity from nuclear power, has been exploring a possible extension of the lifetime of its ageing stations, several of which have come up against their 40-year limit.

That includes Tricastin, built in 1980-81 — making it one of France’s oldest nuclear stations.

It is on a list of installations that the ASN agency said last year could be renovated to extend their lifespan.

Currently operations at 12 of France’s 56 nuclear reactors are shut down because of corrosion issues, EDF said last month.

In February, President Emmanuel Macron called for a “rebirth” of France’s nuclear industry, with 14 new plants, as part of efforts to move away from fossil fuels.

The launch of the Tricastin probe was evidence of the accusations’ “extreme gravity”, the whistleblower’s high-profile lawyers Vincent Brengarth and William Bourdon said in a statement to AFP.

Contacted by AFP, both EDF and ASN declined to comment.

Last November, however, ASN chief inspector Christophe Quintin told AFP that routine checks at Tricastin had not revealed any incidents that might have gone unreported.

Independent radioactivity research association CRIIRAD welcomed the investigation, saying it raised important issues such as nuclear safety and transparency on nuclear issues.

“The judiciary is sending a strong signal, but will it be able to get to the bottom of this?” asked the association’s spokesman, Roland Desbordes.

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