With a further interest rate hike, the ECB is continuing its fight against inflation unperturbed for the time being. The key interest rate was raised by half a percent to 3.5%. In her inflation and growth outlook, ECB President Lagarde was more confident and stressed that developments in the financial sector were being closely monitored. She thus nurtured hopes of a slowdown in the pace of further interest rate hikes. This and a further recovery in the banking sector contributed to a friendly stock market climate at the end of the week.
As generally expected, the European Central Bank (ECB) tightened its key interest rate by 50 basis points. However, in its economic outlook, the ECB now expects inflation to average a slightly lower 5.3% in the current year, compared with the previous forecast of 6.3%. For 2024, inflation is anticipated at 2.9% (previously 3.4%) and for 2025 at 2.1% (2.3%). At the same time, the central bank expects the euro economy to achieve a growth rate of 1.0% this year, twice as strong as previously assumed. In each of the next two years, the ECB expects GDP growth of 1.6%.
Lagarde reassured investors regarding fears of a widening of the banking crisis in the US. There is no conflict of objectives between price stability and financial stability, she said, and the ECB will not be dissuaded from its fight against high inflation despite the turmoil in the banking sector. Lagarde said further rate hikes would depend on data.
On Europe's stock exchanges, equity markets recovered from the previous day's slide, driven by the prospect of a possible slower pace by the ECB and government backing for troubled Credit Suisse. The European benchmark stock index rose by around 2%.
In New York, the recovery in banking stocks and hopes of a more moderate monetary policy fed the positive stock market sentiment. The Dow Jones Industrial initially posted losses, but then turned around and closed at 32,246.55 points, 1.17% higher than the previous day. The broad S&P 500 rose even more strongly, by 1.76%, to 3,960.28 points and on the Nasdaq, the interest rate-sensitive technology indices rose by as much as 2.7%. However, the yield on ten-year US government bonds also climbed to just under 3.6%.
Latest economic data from the US showed a mixed picture: In the Philadelphia region, business confidence improved less than expected in March. This was indicated by the Philly Fed index, which rose to negative 23.2 points in March from negative 24.3 - the lowest level since May 2020. Analysts on average had expected a brightening to negative 15.0 points. A reading below zero signals a decline in business activity in the regional industrial sector. Meanwhile, the number of building permits and housing starts surprised, rising 9.8% and 13.8%, respectively, in February from the previous month.
Asia's stock markets rose Friday after major Wall Street banks pledged a 30-billion-US-dollar deposit with First Republic Bank in an attempt to boost confidence in the banking system. The group of eleven banks included Bank of America, Wells Fargo, Citigroup and JPMorgan Chase. In Hong Kong, the Hang Seng Index gained about 1.8% and the Hang Seng Tech Index even gained more than 4%, leading gains in the region. The Shanghai Composite rose before the weekend by about 1.6% and the Shenzhen Component by 1.2%. In Tokyo, the Nikkei 225 gained 1.2%.
Corporate news in focus today: Deutsche Bank presents its annual report.
Economic data in focus today: Eurozone consumer prices revised data for February (11:00 CET). From the US, data on industrial production in February (14:15), the leading indicators for February (15:00) and the consumer confidence barometer of the University of Michigan for March.
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Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.