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Markets mixed after ECB continues rate hikes

The European Central Bank (ECB) increased interest rates by another quarter of a percentage point, bringing its benchmark rate to 3.75% on Thursday. Equity markets initially reacted positively with European markets ending Thursday’s trading session with strong gains. The sentiment spoiled throughout the day with US markets dropping sharply. The negative sentiment carrying into Asian trading on Friday.

Shane Strowmatt, LGT
Reading time
5 minutes
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ECB President Christine Lagarde gave little guidance regarding future interest rate hikes, instead saying the central bank was “open-minded” with regard to future policy decisions. Eurozone inflation has been dropping rapidly – down to 5.5% in June from 6.1% in May – but is still much higher than the ECB’s target of 2%. The ECB move comes one day after the US Federal Reserve (Fed) raised interest rates by another quarter of a percentage point to bring its benchmark overnight rate to a range of 5.25% to 5.5% on Wednesday. The Euro Stoxx 50 ended the day up 2.33% on Thursday.

In New York, the euphoria in early trading fizzled out later in the day, despite second-quarter gross domestic product (GDP) that beat market expectations. GDP in the second quarter in the US grew by 2.4%, driven by consumer spending. At the end of the day, the major indices were all in the red. The Dow Jones Industrial lost 0.67% to finish the session at 35,282.72 points and the broad S&P 500 fell by 0.64% to 4537.41 points.

The tech-heavy Nasdaq-100 fell less than the wider indices, slipping 0.22%. That didn’t stop Meta from becoming the next Big Tech stock to pop after releasing earnings figures after the close of trading on Wednesday. Meta shares jumped 4.4% after the social media company reported 11% revenue growth in the second quarter and a solid outlook for the coming quarter.

In the energy sector, profits at both Shell and TotalEnergies were roughly halved in the second quarter compared with the previous year, mostly due to lower gas prices. Earnings were strongly affected by higher oil and gas prices last year following Russia’s invasion of Ukraine. Shell’s shares were down 1.61% while TotalEnergies managed a 0.85% gain.

In Asia, stock markets were mostly in negative territory in early Friday trading. In Tokyo, the Nikkei 225 was leading losses (down 1.6%) after the Bank of Japan kept its benchmark interest rate at -0.1% and made some adjustments to its yield-curve control policy. The central bank said it will conduct yield curve control with “greater flexibility” in the future, considering the upper and lower bounds of the ranges to be merely references, rather than fixed limits. In South Korea, the Kospi was trading down 0.1% and Australia’s S&P/ASX 200 lost around 1%. China was bucking the trend Friday with Hong Kong's Hang Seng Index up 1.2% and the Shanghai Composite gaining 1.6%.

Corporate news in focus: Earnings figures from Standard Chartered, BASF, OMV, Air France-KLM, AstraZeneca, Audi, Chevron, Procter & Gamble, Exxon Mobil.

Economic data in focus: French gross domestic product (07:30 CET), Switzerland’s KOF Economic Barometer (09:00), German gross domestic product (10:00), German Consumer Price Index (14:00), US personal consumption expenditures (14:30), University of Michigan Consumer Sentiment Index (16:00).

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

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