Fall in sight of European stock markets ahead of the ECB

Letitia Volga

PARIS (Reuters) – Major European stock markets are expected to fall on Thursday at the open ahead of the European Central Bank’s (ECB) monetary policy announcement, which should confirm the upcoming interest rate hike to counter the soaring prices.

Futures contracts are down 0.77% for the Paris CAC 40, 0.61% for the Dax in Frankfurt, 0.59% for the FTSE in London and 0.63% for the EuroStoxx 50.

Most observers expect the ECB, whose announcement is due at 1145 GMT, to confirm the end of bond buying in the markets at the beginning of the third quarter or even at the end of June, before proceeding to increase interest rates at the July meeting, the first step to end the policy of negative interest rates.

The magnitude of this likely rate hike, the first in more than a decade, remains unknown at this point, and while most investors expect a 25 basis point hike, a half-point n hike is not out of the question in the face of inflation, which hit a new record in May – 8.1% per year.

The market is also looking forward to Friday’s release of monthly US consumer price data to see more clearly the inflation trajectory and thus the Fed’s policy.

VALUES TO FOLLOW:

ON WALL STREET

The New York Stock Exchange closed in the red on Wednesday, still suffering from runaway inflation and the prospect of a Fed rate hike, once again pushing 10-year Treasury yields above the psychological 3% threshold.

The Dow Jones fell 0.81% to 32,910.9, the S&P-500 fell 1.08% to 4,115.77 and the Nasdaq Composite fell 0.73% to 12,086.27.

So far, futures are signaling a weak session.

IN ASIA

Elsewhere on the Tokyo Stock Exchange, the Nikkei closed up 0.04%, with gains in the energy and automotive sectors offsetting lower prices associated with semiconductors and transportation of goods.

In China, the CSI300 fell 0.88% and the Shanghai Composite Index fell 0.68% as sectors in Shanghai are subject to new COVID-19-related restrictions.

EVALUATE

In the bond market, the yield on 10-year Treasuries rose marginally to 3.0363%.

That took nearly five basis points on Wednesday, helped by expectations of monetary tightening and weak demand for Treasury auctions, with the $33 billion ten-year oversubscribed 2.41 times, a lower average and the lowest since November.

Its German equivalent changed little, around 1.354% in early trading.

CHANGES

The “dollar index”, which measures the fluctuations of the US currency against a basket of other base currencies, has not changed.

The euro is stable at $1.0709 until the decision of the ECB.

In the event that institution president Christine Lagarde, who will speak from 1230 GMT, “leans towards a more aggressive (50 basis point) rate hike in the future, this will give momentum to the euro-dollar.” Carol Kong, strategist at Commonwealth Bank of Australia, said.

“I don’t think a rate hike on Thursday is unlikely. […] but given record high inflation and the business case for a rate hike, I wouldn’t rule it out entirely,” she added.

OIL

The oil market is moving flat, torn between the announcement of a doubling-than-expected increase in Chinese exports last month and new traffic restrictions in parts of Shanghai due to the COVID-19 epidemic.

A barrel of Brent oil fell 0.05% to $123.52 a barrel, while a barrel of American light oil (West Texas Intermediate, WTI) lost 0.14% to $121.94.

KEY ECONOMIC INDICATORS OF THE AGENDA FOR JUNE 9

COUNTRY RATE GMT PERIOD PREVIOUS CONSENSUS

USA 12:30 Unemployment Claims Week: 210,000 200,000

June 4

(Edited by Mathieu Protard and Keith Entringer)