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ECB hike fails to dent stocks

European equities rose on Thursday after the European Central Bank (ECB) raised interest rates for the first time since 2023, as investors looked past the move and instead drew support from easing geopolitical tensions after US President Donald Trump said planned strikes on Iran had been called off. US stocks closed sharply higher on Thursday, while Asian equities were trading firmly in the green on Friday, with technology shares leading gains amid hopes for a US-Iran agreement and ahead of SpaceX’s market debut. Oil prices fell on Friday, alongside gold, while the US Dollar Index was slightly firmer.

  • Date
  • Author Shane Strowmatt, Senior Investment Writer
  • Reading time 5 minutes

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The ECB raised its key interest rate by 25 basis points to 2.25% on Thursday, its first increase since 2023, as the Iran war and the resulting energy shock pushed euro-area inflation to 3.2% in May from the ECB’s 2% target. The bank also lifted its inflation forecast to 3% for this year, before projecting 2.3% in 2027 and 2% in 2028, while cutting its growth outlook to 0.8% for this year after the euro-area economy expanded just 0.1% in the first quarter. The ECB said higher energy costs were feeding through to food, goods and services, while also weighing on confidence and real incomes. President Christine Lagarde said policymakers were not committing to a set path for rates given continued upside risks to inflation and downside risks to growth.

European stocks rise despite ECB

European equities closed higher on Thursday, shrugging off the ECB’s expected 25-basis-point rate increase and drawing support from a rebound in US markets. The Euro Stoxx 50 gained 0.9%, while Switzerland’s SMI added 0.5%. Technology shares were mixed, with semiconductor-related stocks benefiting from continued enthusiasm around artificial intelligence, while software shares came under pressure after Oracle’s results highlighted heavy spending on data centre capacity.

US stocks rally on Trump, SpaceX

US equities rose sharply on Thursday after US President Donald Trump said planned US strikes on Iran had been called off and suggested talks with Tehran were close to a breakthrough, easing geopolitical fears and pushing oil prices lower. The Nasdaq 100 climbed 3.3% to 29,446.18 points, while the Dow Jones Industrial Average gained 1.9% to 50,848.75 points and the S&P 500 advanced 1.8% to 7,394.30 points, largely reversing Wednesday’s losses. Investors were also buoyed by enthusiasm ahead of SpaceX’s share sale on Friday, which seeks to raise about USD 75 billion through the sale of a 5% stake and implies a valuation of nearly USD 1.8 trillion. Within the market, chipmakers such as KLA, Lam Research and Micron rebounded strongly, while software company Oracle fell 8.5% after its results failed to reassure investors about heavy spending on capacity expansion. Oil prices declined on Friday after US President Donald Trump said Washington had reached a framework agreement with Iran, raising hopes that tensions in the Middle East may ease despite pushback from Tehran. Brent crude oil was trading around USD 88.27 per barrel and West Texas Intermediate (WTI) around USD 85.79, both more than 2% lower.

US wholesale inflation accelerates in May

Markets shrugged off inflation data, after US producer prices rose 1.1% in May, matching April’s increase and lifting annual wholesale inflation to 6.5%, the highest level since November 2022, according to data released on Thursday. Core producer prices excluding food and energy increased 0.4%, indicating that the latest inflation surge was driven mainly by energy after final demand energy prices jumped 10.7% and wholesale gasoline prices climbed 23.4%. A narrower core measure excluding food, energy and trade services rose 0.8% on the month and 5.1% from a year earlier, its strongest readings since March and October 2022, respectively. The report followed Wednesday’s stronger US consumer inflation data and is likely to reinforce expectations that the Federal Reserve will keep interest rates unchanged at next week’s meeting.

Asian stocks jump on Iran hopes

Asian equities advanced strongly on Friday after US President Donald Trump said a deal to end the conflict with Iran was close, lifting risk sentiment and prompting a rebound in technology shares. South Korea’s KOSPI surged 4.6%, Japan’s Nikkei 225 gained 2.8%, and Australia’s S&P/ASX 200 was trading 1.8% higher. Hong Kong’s Hang Seng Index was up 1.7%, mainland China’s CSI 300 was trading 1.4% higher, and India’s Nifty 50 was 0.9% firmer. The rally marked a recovery from recent losses in chipmakers, which had been hit by profit-taking amid worries over the Iran war and higher interest rates.

Corporate and economic calendar

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: German Consumer Price Index (08:00), UK gross domestic product (08:00), UK manufacturing production (08:00), UK trade balance (08:00), French Consumer Price Index (08:45), Bundesbank monthly report (11:00), University of Michigan Consumer Sentiment Index (16:00).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.