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Daily Wrap Up 09 June 2022

9 Jun 2022 05:03 PM

Stocks fall as ECB signals hike

European equity markets are in the red as the European Central Bank issued its intention to hike rates by 0.25% next month. The ECB also indicated it might lift rates by 0.5% in September, but that will depend on the inflation situation. CPI in the eurozone is 8.1%, its highest on record. Going into today’s interest rate decision, economists were anticipating rates to be held at 0.0%, and there was a huge amount of speculation the bank would use the platform to signal next month’s hike. Now the meeting is out of the way, the focus will move to inflation and whether it will be high enough to justify a larger than normal rate hike in September. Given the trajectory of euro area CPI, it doesn’t look like it will be tapering off anytime soon. Central banks usually operate a policy that is like that of their peers, and seeing as the BoE and the Fed have started a hiking cycle, it makes it more likely the ECB will announce a large hike in September. The increasingly real prospect of a rate hike next month has sent eurozone stocks lower as the DAX, the CAC and the FTSEMIB are all down well over 1%. US indices are feeling the pinch too as the US 10-year yield has ticked up to 3.05%. On Wall Street, the mood is bearish, but the losses are not as bad as those in Europe as the S&P 500 is off 0.6%. Gerry Rice, the spokesperson for the IMF, said the body is preparing to lower its global growth forecast. Keep in mind, the group cut its guidance to 3.6% in April following the Russian invasion of Ukraine. The commentary from Mr Rice is weighing on equities and industrial metals like copper and silver are down 1.8% and 2.1% respectively.

The euro is suffering against the US dollar, the Swiss franc and the British pound as the ECB basically ruled out a 50-basis point hike for next month. In recent weeks, the euro rallied as there was talk today’s meeting would be hawkish, but now dealers are booking their profits.

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