European Markets Waver After Larger Rate Hike and Italian Political Turmoil

Bridgette Randall
21 Jul, 2022
New York City

European markets traded mixed after the central bank lifted rates for the first time in eleven years and Italian political turmoil deepened. 

The DAX index eased 0.23% to 13,246.60, the CAC-40 index rose 0.3% to 6,201.21, and the FTSE 100 index increased 0.09% to 7,270.51.  

The European Central Bank lifted its key lending rate by 50 basis points to cool rapidly advancing inflation in the currency zone of 19 nations. 

The governing council lifted the rates more than the 25 basis points of increase  expected by traders and economists. 

With the latest increase, the key lending rate was lifted to zero and the central bank had previously signaled rate hikes at the next meetings in July and September. 

The deposit rate is now set at zero, the main refinancing rate at 0.50%, and  the marginal lending facility is set at 0.75%. 

The euro strengthened after the rate decision to $1.0245. 

The central bank reiterated its commitment to bring down the inflation rate to its target rate of 2% as supply constraints and rising energy prices lifted June inflation to 8.6%. 

"We expect inflation to remain undesirably high for some time, owing to continued pressures from energy and food prices and pipeline pressures in the pricing chain," the accompanying statement noted. 

The ECB also said that the "inflation continues to be undesirably high and is expected to remain above our target for some time. The latest data indicate a slowdown in growth, clouding the outlook for the second half of 2022 and beyond."

With the diverging interest rates in the eurozone and heightened political turmoil in Italy, the central bank released a new tool to offer additional lending facilities with stringent conditions in the event of severe bond market conditions. 

The anticipatory move is expected to keep the smooth functioning of the eurozone bond markets.

The yield on the 10-year Italian government bonds shot up to 3.6014% after Prime Minister Mario Draghi offered his resignation. 

 

European Stock Movers 

Electrolux declined 3.9% to skr 140.90 after the Swedish home appliance maker reported sharply lower than expected second quarter results. 

Revenues in the second quarter ending in June increased 11% to skr 33.75 billion. In constant currencies, sales rose 0.3% from a year ago. 

Net income in the period plunged 81% to skr 257 million from a year ago and diluted earnings per share declined to skr 0.93 from skr 4.81 a year ago.  

Nokia Oyj increased 9.2% to 5.02 euros after the Finnish telecom operator reported better than expected earnings. 

Net sales in the second quarter increased 11% to 5.7 billion euros or rose 3% in constant currencies. 

Net income in the period increased 31% to 460 million euros and diluted earnings per share rose to 8 euro cents from 6 euro cents a year ago.

IG Group jumped 8.9% to 772.34 pence after the British trading platform announced a plan to buy back its stock. 

Ocado Group traded volatile but closed up 0.8% to 781.29 pence after the online grocery delivery company reported first-half loss widened. 

Group revenues in the first-half ending May declined 4.4% to