Image: Reuters Berita 24 English - As the European Central Bank prepared to raise interest rates next month for the first time since 2011 a...
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| Image: Reuters |
Berita 24 English - As the European Central Bank prepared to raise interest rates next month for the first time since 2011 and as upcoming inflation data alarmed investors, U.S. and European stocks fell and benchmark euro zone yields reached a new eight-year high on Thursday.
While the ECB's decision was widely anticipated, the likelihood of a higher increase in September weighed on sentiment as the euro zone economy struggles with sluggish growth and increasing inflation.
Wall Street stocks declined, with the S&P 500 and Nasdaq losing more than 2 percent, as the market awaited the release of the May consumer price index on Friday.
CPI is a significant metric, according to Jack Ablin, chief investment officer of Cresset Asset Management LLC. Historically, the employment report has been significant, but inflation is currently taking centre stage.
For months, the focus of the markets has been on the rate at which central banks have moved to combat inflation. Investors now anticipate that the Federal Reserve will raise interest rates by 50 basis points the following week, particularly if U.S. CPI data confirms a high inflation number.
Ablin believes that the peak of inflation occurred in March, with lumber and copper prices already falling.
However, rate hikes by the central bank might also hamper economic development. The ECB forecasted that inflation would be "undesirably elevated" for an extended period of time, and the White House forecasts that Friday's statistics would likewise be elevated.
Bill Papadakis, a macro strategist at Lombard Odier, stated that the markets anticipate the ECB's policy rate to rise over 2% and foresee slower economic growth.
"We believe this would make monetary policy restrictive, and we question whether the eurozone economy could withstand such tight conditions in light of its current issues," Papadakis stated.
Joe Manimbo, senior market analyst at Western Union Business Solutions, highlighted that the Reserve Bank of Australia raised more than anticipated this week, whereas "the ECB sounded a somewhat less hawkish tone, causing the euro to zigzag." For euro bulls, he described the ECB's more moderate rate hikes as "underwhelming."
The euro slipped 0.93 percent versus the dollar to $1.0616, while the dollar index increased 0.73 percent. Nonetheless, once the ECB signalled a series of prospective rate hikes, bond rates in southern Europe soared.
Ablin stated, "The ECB appears to be approximately six months behind the Fed in terms of activity and likely attitude as well."
With inflation in the euro zone at an all-time high of 8.1%, the ECB has previously signalled a series of actions, including the conclusion of its long-running asset-buying programme at the end of June.
The European Central Bank (ECB) outlined intentions to raise interest rates by a quarter point next month and likely by another half point in September, marking the first 50-basis-point shift in 22 years.
The yield on Germany's 10-year government bonds - the primary barometer for European borrowing rates - increased to 1.47 percent, its highest level in eight years. The bund thereafter remained unchanged at 1.437%.
The yield on 10-year U.S. Treasury notes increased by 1.6 basis points to 3.046%.
Due to skyrocketing energy and food prices, the ECB revised its inflation projection for this year to 6.8 percent from 5.1 percent and its growth outlook to 2.8 percent from 3.7 percent.
Inflation in the Eurozone is at a record high, as depicted in this image: http://fingfx.thomsonreuters.com/gfx/mkt/egpbkwxovq/ecb0706.PNG
Concerns about inflation and its effect on the economy diminished enthusiasm for risk.
The pan-European STOXX 600 index declined 1.36 percent, while the MSCI global stock index declined 2.02 percent.
The Dow Jones Industrial Average sank 1.94 percent, the S&P 500 dropped 2.38 percent, and the Nasdaq Composite plunged 2.75 percent on Wall Street.
Asian stocks dipped during the overnight session. The broadest MSCI index of Asia-Pacific shares excluding Japan declined by 0.5 percent.
At 134.55, the yen reached its lowest level versus the dollar in twenty years. A widening policy divergence has exerted pressure on the yen, as the Bank of Japan is one of the few global central banks that has yet to signal an increase in interest rates. [FRX/]
After sections of Shanghai adopted new lockdown measures, the price of oil decreased. Nonetheless, robust advances in refined products held crude prices around their highest levels in three months.
U.S. crude futures closed at $121.51 a barrel, down 60 cents, while Brent crude futures settled at $123.07, down 51 cents.
Gold prices as rising Treasury yields and a strong currency diminished the attraction of bullion.
Futures on gold in the United States declined 0.2% to $1,852.80.
