Daily Wrap Up 03 February 2022

3 Feb 2022 05:10 PM

Hawkish ECB overshadows BoE hike, traders unfriend Facebook

Stock markets in Europe are down as the European Central Bank (ECB) delivered a mildly hawkish update. As expected, interest rates were kept on hold. Sources at the ECB said it is sensible not to rule out the possibility of a rate hike in 2022, and traders took that as a sign the bank is edging in the direction of a rate hike. It was a similar situation to last month’s Fed meeting as the US bank didn’t reject the prospect of seven rate hikes this year. There is a big difference between not ruling out a potential rate increase, and actively laying the groundwork for a tightening of policy. Christine Lagarde – the ECB boss - gave an upbeat outlook, as she expects the economy to pick up strongly in the year. Yesterday it was confirmed that eurozone inflation hit a new record high of 5.1%, and today Lagarde acknowledged that rising energy costs are hurting income. The ECB chief stated they won’t be complacent on rates, but at the same time, they won’t be rushed. Eurozone stocks enjoyed an impressive rally this week as the market was less fearful about Russia-Ukraine as well as the Fed potentially hiking rates next month. The DAX and the CAC are both down over 1% due to the ECB’s language, while the FTSE 100 is only down 0.4%, as the rally in the British banking sector is somewhat counteracting over wider bearish mood.

The Bank of England (BoE) lifted rates by 0.25% to 0.5%. All nine members of the monetary policy committee voted for the 0.25% increase, and it was announced that four members voted for a 0.5% rise, which underlines the hawkish feeling at the BoE. Sterling befitted from the news, and it ticked up versus the US dollar. Shortly after the announcement, EUR/GBP fell to a two-year low, but the currency pair quickly rebounded in the wake of the ECB announcement.

Shares in Meta Platforms, the parent company of Facebook, have tumbled by over 20% as the social media titan posted disappointing quarterly results last night. There are fears the social media company is plateauing as the number of daily active users on a quarterly basis fell for the first time on record. In addition to that, the group anticipates revenue to be $27-$29 billion in the first quarter, while the consensus estimate was $30.15 billion. The severe fall in the stock is weighing on the S&P 500 and the NASDAQ 100.

It seems strange that gold is down 0.25% while the US dollar index has lost over 0.7%, not to mention that equites are in the red. Typically, the yellow metal rallies in circumstances where the greenback and stocks have fallen. The relatively small upward move in gold could be a sign of moderate buying appetite.

Prices may be delayed by 5 seconds. Prices above are subject to our website terms and conditions. Prices are indicative only