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ECB keeps rates steady, signals cut to come

The European Central Bank (ECB) kept interest rates unchanged at record highs but made it clear that an interest rate cut could be imminent in the language of its statement on Thursday. The euro fell versus the dollar after the announcement and European stocks finished the day lower. US equity markets made gains on Thursday, particularly in the tech sector, and Asian trading was mixed during Friday’s session.

Shane Strowmatt, LGT
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5 minutes
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The ECB kept its deposit rate at 4%, its peak level after hiking rates in 2022 and 2023 in an effort to rein in inflation. Consumer inflation was 2.4% in March but was swiftly approaching the ECB’s 2% target. That prompted the ECB to say that a further increase in confidence that the euro area would reach that target would be sufficient to cause the central bank to reduce interest rates. The ECB’s next monetary policy decision will be made public on June 6. The Euro Stoxx lost 0.7% on Thursday while Germany’s DAX dropped 0.8% and France’s CAC 40 fell 0.3%.

Shares of Swiss banking giant UBS dropped 2.5% on Thursday after the Swiss government revealed a plan for how to regulate the nation’s largest banks. The rules were revamped after the fall of Credit Suisse last year and contain recommendations such as higher capital requirements and sanctions against bank management, among other things. The initiative still has to be passed by parliament. Switzerland’s SMI ended Thursday’s session 0.3% lower.

In the US another key inflation indicator came in high on Thursday. The Producer Price Index (PPI) was up 2.1% in March, when compared with the same month a year earlier. That’s up from 1.6% in February. Producer prices are closely watched by markets as they tend to affect future consumer prices, the preferred gauge of inflation for most central banks. In another blow to market participants who are hoping for interest rate cuts by the Federal Reserve (Fed) soon, new applications for unemployment benefits fell last week by 11,000 to 211,000. A resilient labour market signals to the Fed that the economy can withstand higher interest rates for longer.

In New York, stock indices recovered from initial losses on Thursday to mostly finish in positive territory. The Dow Jones Industrial ended the day essentially flat, the S&P 500 gained 0.7% and the tech-heavy Nasdaq-100 shot up 1.7%. The first-quarter 2023 earnings season kicks off on Friday with JPMorgan Chase, Citigroup and Wells Fargo all reporting figures.

In the Asia-Pacific region, stock markets were mixed during the last session of the week. In South Korea, the Kospi fell nearly 1% after the Bank of Korea left interest rates unchanged at a 15-year high on Friday. Singapore’s monetary agency also kept its monetary policy unchanged on Friday. Hong Kong's Hang Seng Index dropped 1.7%, while the Shanghai Composite was up 0.1%.
In Tokyo, the Nikkei 225 gained 0.2% and Australia’s S&P/ASX 200 was trading 0.4% lower.

Corporate news in focus: Quarterly figures from BlackRock, Citigroup, JPMorgan Chase, Wells Fargo.

Economic data in focus: German Consumer Price Index, UK manufacturing production, French Consumer Price Index, University of Michigan Consumer Sentiment Index.


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