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ECB and BOJ hold, tech stocks slide

European equities advanced on Thursday, while the European Central Bank (ECB) kept borrowing costs steady despite elevated inflation and risks from higher energy prices. ECB President Christine Lagarde also announced plans to leave her post early next year. The Bank of Japan (BOJ) maintained rates on Friday and signalled greater confidence that underlying price pressures had reached its target. Disappointing US technology earnings fuelled doubts about the returns from heavy AI spending, leaving Wall Street lower on Thursday and Asian stock markets mostly weaker on Friday.

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

Strategist EZB
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ECB holds rates despite rising inflation

The European Central Bank left its deposit rate unchanged at 2.5% on Thursday, as markets expected, following a 25-basis-point increase last month. Euro-area inflation reached a three-year high of 3.8% in September, with energy prices rising 18.8% as the Middle East conflict disrupted markets. Policymakers unanimously opted to pause because underlying inflation and wages remained broadly stable, while higher borrowing costs had already tightened financial conditions. The euro-area economy continued to grow in the third quarter, but the ECB warned that higher energy costs threatened to push inflation up further and weaken economic activity. ECB President Lagarde also announced on Thursday that she would step down in February 2027. The Euro Stoxx 50 and Swiss Market Index closed 0.7% and 1.2% higher, respectively, on Thursday. The euro was little changed against the US dollar at USD 1.1183.

Bank of Japan holds rates, signals tightening

Japan's central bank left its policy rate unchanged at 1.25% on Friday, as expected, and judged underlying inflation to be in line with its 2% goal for the first time since introducing the target in 2013. The decision passed by eight votes to one, with the dissenting member favouring an increase to 1.5%. The central bank raised its fiscal-year 2027 inflation projection to 2.6% from 2.4% and its forecast, excluding fresh food and energy, to 2.7% from 2.6%, supporting expectations of further tightening. 

Asian stocks slide on AI spending concerns

Korea’s Kospi fell 3.5% and Japan’s Nikkei 225 lost 2.1% on Friday as disappointing US technology earnings heightened doubts about returns on artificial intelligence investment. Semiconductor shares led the declines. Hong Kong’s Hang Seng Index bucked the regional trend, rising 1.6%, while mainland China’s CSI 300 declined 1.4%.

US stocks fall as Alphabet rattles technology

The Nasdaq 100 dropped 1.4% to 29,402.51 points on Thursday as Google parent Alphabet’s investment spending revived concerns about the costs of artificial intelligence, while the S&P 500 fell 0.3% to 7720.39 and the Dow Jones lost 0.3% to 52,342.56. Alphabet shares plunged 12.6%, erasing nearly USD 500 billion in market value, after capital expenditure exceeded operating cash generation and free cash flow turned sharply negative. Software companies ServiceNow and Fortinet slumped 27% and 20%, respectively, following disappointing quarterly results and weak forecasts. Pharmaceutical stocks provided some support, with Eli Lilly gaining 6.6% after raising its revenue outlook and Merck advancing on better-than-expected earnings and higher annual guidance.

US growth strengthens as inflation accelerates

US gross domestic product expanded at an annualised rate of 3.4% in the third quarter, up from 2.2% in the second quarter and exceeding market expectations, according to data released on Thursday. Growth was supported by AI-related investment and robust spending, with private investment rising 19.4% and consumer spending increasing 3.8%, matching the previous quarter’s pace. The Federal Reserve’s preferred inflation measure, personal consumption expenditures, rose 0.5% month-on-month in September and 3.6% year-on-year, largely reflecting higher energy costs, while core inflation stood at 3.1% annually. Both annual inflation measures remained above the Fed’s 2% target, complicating the policy outlook after the central bank left interest rates unchanged at 3.75%–4% on Wednesday.

Bitcoin falls after record Binance hack

Bitcoin was trading 1.7% lower at around USD 78,600 after a USD 6.3 billion cyberattack on cryptocurrency exchange Binance, the industry’s largest recorded breach, triggered a broader sell-off. Ether and Binance’s BNB token also dropped more than 3%. Binance reported that approximately USD 3 billion in assets had been frozen and committed to reimbursing all losses. Preliminary findings pointed to an attacker gaining access through a developer’s compromised laptop; deposits remained operational, and Binance expected withdrawals to start reopening within 48 hours.

Corporate and economic calendar

Corporate news in focus: Quarterly figures from AbbVie, AstraZeneca, BP, Chevron, Exxon Mobil, Intesa Sanpaolo, Regeneron Pharmaceuticals, and Sanofi.

Economic data in focus: French gross domestic product (07:30), French Consumer Price Index (08:45), Swiss KOF Economic Barometer (09:00), Swiss foreign currency reserves (09:00), German unemployment rate (09:55), Italian gross domestic product (10:00), German gross domestic product (10:00), Italian Consumer Price Index (11:00), euro-area gross domestic product (11:00), euro-area unemployment rate (11:00), Canadian gross domestic product (13:30), German Consumer Price Index (14:00), US Purchasing Managers’ Index (14:45).

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Editor: Alessandro Fezzi
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