The Governing Council of the ECB decided to raise interest rates by 50 basis points, so that the interest rate for its financing operations will be 0.50%, while the deposit rate will reach 0% and the loan facility, 0.75%. This is also the first rate hike since July 2011.
The shared currency has enjoyed a strong week on bets that the ECB could offer a 50 basis point (bps) rate hike later, and after the Russian pipeline North Stream 1 got back to work on time after 10 days of maintenance.
The market was pretty much pricing in a 50/50 chance of a 50 basis point ECB hike today, so you would have thought you’d get a reaction if that happened,” said Kit Juckes, strategist at General Company.
Meanwhile, the markets are divided on whether ECB policymakers will deliver a 25 basis point rate hike or a half point hike to try to fight the inflation rampant, despite the palpable risks of recession.
The ECB is likely to provide more details of a new tool aimed at controlling skyrocketing borrowing costs in the world’s most indebted countries. eurozone.
“If the ECB offers a 25 bp increase and its tool anti-fragmentation is credible, the euro should not fall too much and stay above parity,” said CBA’s Capurso.
The situation in Europe was further complicated by the collapse of the government in Italy which will hold early elections at the beginning of October, after the resignation of Mario Draghi.
Italy’s markets were shaken. Benchmark 10-year Italian bond yields soared more than 20 basis points (bps) to their highest level in more than 3 weeks, while Italian bank shares fell as much as 4%.
First reaction of the markets
With the ECB statement, the euro strengthens, but European shares have not shown much variation. The one that rises the most in the region during the session on Thursday is the Ibex35 of Spain, with a gain of 0.75%, while the FTSE MIB of Italy falls precisely 0.75%. France’s CAC40 is up 0.14% slightly, but Germany’s DAX and UK’s FTSE 100 remain negative.
This tells us that there is a lot of indecision in European equities, precisely because the increase in interest rates could slow down the economic expansion and the shares of the technology sector are the most affected by raising rates. The Dax found resistance at the 55 day EMA at 13,439 points and bounces lower, but consolidates just below that moving average around 13,278 points.
Source: Ambito
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