The European Central Bank (ECB) left interest rates unchanged on Thursday after 10 consecutive rate hikes. The rate decision was largely already priced in by markets and positive macroeconomic data out of the US couldn’t save equity markets on Thursday. Stocks in Europe and the US fell, and the euro slipped versus the dollar.
The ECB ended its interest rate hiking cycle on Thursday, leaving its deposit rate at 4%, a record high. The central bank reiterated its position that leaving rates at the current level for a sufficiently long enough period of time should bring inflation back down to its 2% target in the medium term. The ECB expects euro area inflation of 5.6% this year and 3.2% next year. While those numbers are higher than its target, the bank also has to deal with a weak business environment and a slow economic growth forecast of just 0.7% for this year, particularly due to weakness in the bloc’s biggest economy, Germany. The euro fell slightly against the dollar after the decision. The Euro Stoxx 50 ended Thursday’s session down 0.6% and Germany’s DAX lost 1.1%.
In New York, positive macroeconomic data couldn’t save equity markets on Thursday as negative geopolitical developments overwhelmed sentiment. Gross domestic product (GDP) for the US came in at 4.9% on an annualized basis for the third quarter, which was slightly ahead of market expectations. The strongest US GDP growth figure since the fourth quarter of 2021 was supported by consumer and government spending as well as exports. But concerns that the war in Israel could morph into a broader Middle Eastern conflict continued to pressure sentiment after the US struck targets in Syria due to attacks on its troops there by Iran-backed militia. All major US stock indices continued to bleed with tech stocks once again leading losses on Thursday. The Dow Jones Industrial was down 0.8% and the S&P 500 lost 1.2%. The tech-heavy Nasdaq-100 dropped 1.9%.
In individual stocks, Meta shares fell 3.7% on Thursday. While the company’s quarterly results, presented a day earlier, beat market expectations, the social media giant’s comments about the effects of the war in Israel on business were concerning to investors. Amazon shares also fell 1.3% on Thursday despite presenting third-quarter earnings that beat analysts’ estimates. Markets reacted very differently to a beat by Intel on Thursday with the chipmaker’s shares soaring 7.7% in after-hour trading. The company also announced it will cut costs by around 3 billion US dollars this year. The earnings season shifts focus from tech to the energy sector on Friday, with quarterly earnings figures due from oil majors ExxonMobil and Chevron.
Market sentiment flipped during the Asia-Pacific trading session, with major stock markets making gains by afternoon trading. Japan’s Nikkei 225 was trading up 1.2% despite the core Consumer Price Index (CPI) in Tokyo accelerating to 2.7% in October. Inflation in the capital city is considered a leading indicator for inflation at the national level. In South Korea, the Kospi was up 0.2%. Australia’s S&P/ASX 200 gained 0.2% as well. Hong Kong's Hang Seng Index spiked 1.7% and the Shanghai Composite gained 0.9%.
Corporate news in focus: Quarterly figures from Air France-KLM, Sanofi, Svenska Cellulosa, ExxonMobil, Chevron.
Economic data in focus: Spanish gross domestic product (09:00 CET), Bank of Russia interest rate decision (12:30), US personal consumption expenditures (14:30), University of Michigan Consumer Sentiment Index (16:00).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.