- Europe is signaling the first rise in ECB rates in a decade
- The yen remained at a 20-year low against the dollar
- China’s stock stumbles when Shanghai sees new COVID-19 slowdowns
- Oil is around $ 123 a barrel
- Chart: Overall asset performance
LONDON, June 9 (Reuters) – European benchmark borrowing costs hit an eight-year high on Thursday, but the euro and equities remained firmly in place as the European Central Bank indicated it would rise eurozone interest rates for the first time in a decade next month.
With a 20-year low for the Japanese yen, there wasn’t much else worth focusing on. The speed with which the ECB would raise eurozone rates from zero has dominated attention for months, as part of the widening tightening of global monetary policy in more than two decades. Read more
Bond traders set the momentum by bringing the German government’s 10-year bond yield – the leading indicator of European debt rates – to its highest level in almost eight years, at 1.41%. Shares began to fall again. The euro barely moved. / FRX
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With eurozone inflation at a record 8.1% and rising rapidly, the ECB had already made a number of moves, including the end of its long-term asset purchase program later this month. The details, however, were crucial.
He indicated that he plans to raise rates by a quarter of a point next month and probably half a point again in September, which would be the first move of 50 basis points in 22 years. Read more
“There has already been a rate hike in July and autumn,” said Close Brothers Asset Management Investment Director Robert Alster, adding that the ECB arrived relatively late for the rate hike.
“We do not expect a more aggressive hardening as long as the war in Ukraine continues to affect sentiment.”
The ECB also released new forecasts that raised its inflation projections to 6.8% for this year from 5.1% earlier, but reduced its growth outlook to 2.8% from 3 , 7% due to the impact of very high energy and food prices.
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When the new post-ECB meeting began, small but widespread losses in European stocks were led by miners (.SXPP) as China imposed new measures to block COVID in Shanghai. financial sector (.SXEP) was slightly better. with banks soon able to charge higher loan rates. Read more
Asian equities had fallen overnight and Wall Street futures were generally flat, although it had more to do with the renewed rise in world bond and dollar yields, which will ultimately mean tighter financial institutions.
MSCI’s largest Asia-Pacific stock index outside of Japan (.MIAPJ0000PUS) was closing at 0.5%, with Australian stocks (.AXJO) ending with a 1.4% drop and the Seoul KOSPI (.KS11) plan. Hong Kong’s Hang Seng (.HSI) went from small gains to 0.7% and Chinese A shares fell 1%. (.CSI300)
“It’s a classic price action before the central bank meeting,” said Matt Simpson, a senior market analyst at City Index in Sydney. Read more
“It’s the most exciting meeting since (Christine Lagarde) has been at the helm, since Draghi was here,‘ whatever it takes, ’” said Matt Simpson, senior market analyst at City Index in Sydney, referring to the ECB meeting.
YEN LOW
The other major focus for global investors was on the Japanese yen, which fell to a 20-year low of $ 134.56 before regaining some ground. It is also approaching crucial levels against the yuan of China, which are very sensitive for Asia.
The Japanese currency has been hit by growing political divergence, and the Bank of Japan remains one of the few central banks in the world that does not currently indicate higher interest rates.
The world dollar index, which is up almost 7% this year, remained stable at 102.38, and the euro stood at $ 1.0738 and tested 1.05 against its Swiss franc neighbor.
The 10-year U.S. yield rose 3.0585% on Thursday from the 3.029% U.S. close on Wednesday and the two-year yield rose 2.815% compared to a 2.7474% U.S. close.
Added to the concern about European inflation, this week’s data showed that the eurozone economy grew much faster in the first quarter than in the previous three months, despite the war in Ukraine. Read more
As investors digest the size and pace of the ECB’s tightening in the coming months, they also expect U.S. consumer price data on Friday, which the White House has said it expects to “increase.” Economists expect annual inflation to be 8.3%, according to a Reuters poll. Read more
Oil prices were close to three-month highs at $ 123 a barrel in the commodity market. On Wednesday, the Dow Jones Industrial Average (.DJI) fell 0.81%, the S&P 500 (.SPX) lost 1.08% and the Nasdaq Composite (.IXIC) fell 0.73%.
“Over the past two weeks, trading has been in a very low range and also based on very low volumes,” ING analysts said in a note.
“Previous cases of low-volume trading have usually preceded a sharp downward shift,” they warned, adding that the ECB meeting and US price data on Friday were likely to be “catalysts for ‘a more bearish outlook’.
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Additional report by Andrew Galbraith in Shanghai, edited by Raissa Kasolowsky, Catherine Evans and Andrew Heavens
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