LGT Navigator

ECB slows pace of rate hikes despite high inflation

The European Central Bank (ECB) slowed the pace of its rate hikes Thursday but suggested at least one more increase is likely needed to contain inflation on the continent. The 25-basis-point move follows three 50-basis-point hikes and is the seventh straight increase for the central bank, bringing the deposit rate to 3.25%, its highest level since 2008. Equity markets finished the day lower, and the euro dipped after the ECB announcement.

Shane Strowmatt, LGT
Reading time
5 minutes
ECB sign at night
© Shutterstock

ECB President Christine Lagarde acknowledged inflation, which came in well ahead of the ECB’s target of 2% earlier this week at 7%, is still too high in the euro area. Nevertheless, the slower pace of rate hikes is needed while the central bank observes the effect of rate increases on the real economy. The eurozone labour market looks robust with an all-time low unemployment rate of 6.5% in March, but other indicators such as economic growth have been poor recently. In addition to the rate hike, the ECB said it plans to stop reinvestments under its asset purchase program this summer, thereby shrinking the 5-trillion-euro stock of bonds on its balance sheet. Most European equity markets traded lower following the ECB’s announcement Thursday with the STOXX Europe 600 ending the day down 0.47%, Germany’s DAX 0.51% lower and Switzerland’s SMI falling 0.43%.

Equity markets in New York continued with the negative sentiment, fuelled by fears in the US regional banking sector once again. The Dow Jones Industrial lost 0.86% to end the day at 33,127.74 points, closing in negative territory year to date. The S&P 500 dropped 0.72% to close at 4,061.22 points. The tech-heavy Nasdaq indices fell around 0.4%. Banking stocks were under pressure again, with the most recent US regional lender to come under pressure, PacWest, losing about half of its value Thursday and Wester Alliance trading down 38%. The benchmark KBW Bank Index finished the day 3.82% lower.

Apple continued Big Tech’s solid earnings seasons with figures that beat expectations after US markets closed on Thursday. Better-than-expected iPhone revenue was the main driver of the results. Apple shares gained in after-hour trading.

In Asia, trading was mixed. Hong Kong’s Hang Seng Index gained 0.5%, leading gains. In mainland China, markets were down with the Shanghai Composite losing 0.7% and the Shenzhen Component falling 1.1%. Australia’s S&P/ASX 200 gained about 0.3%. In Japan and South Korea, both the Nikkei the Kospi were marginally in positive territory.

Corporate news in focus: Q1 figures from Air France-KLM, Raiffeisen, Adidas. Munich Re holds its annual general meeting.

Economic data in focus: Swiss unemployment rate (07:45 CET), Swiss Consumer Price Index (08:30), eurozone retail sales (11:00), SNB Chairman Thomas Jordan speaks (11:00), US nonfarm payrolls (14:30), US unemployment rate (14:30).

LGT helps you make informed investment decisions

All about global economic and market trends at a glance

You can also follow us on Facebook or LinkedIn – or visit Insights and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.

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

Contact us