ECB Hikes Rates by 0.25%, European Markets Turn Lower

Bridgette Randall
04 May, 2023
Frankfurt

European markets turned lower and the European Central Bank hiked its reference rate by 25 basis points. 

Benchmark indexes in Paris and Frankfurt declined after investors digested the latest rate hike decision by the European Central Bank and the U.S. Federal Reserve. 

Indexes in London edged down following weak commodities prices and crude oil drifted to a new 5-week low. 

 

ECB Hikes Rates by 0.25%, Halts APP Reinvestments

The European Central Bank increased its reference rate by 25 basis points after lifting rates by 50 basis points for three times in a row. 

After the hike, the main refinancing facility rate increased to 3.75%, marginal lending facility to 4.0% and deposit facility to 3.0%  effective May 10. 

In addition, the Governing Council decided to discontinue its reinvestment of cash maturing bonds purchased under the Є3.2 trillion Asset Purchase Program from July. 

The balance in the program is declining by Є15 billion a month.  

Policymakers noted that the headline inflation has been declining but underlying price pressures remain strong.  

"At the same time, the past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain," the ECB statement released after the meeting noted.     

 

Federal Reserve Lifts Fed Funds Rate by 0.25% 

On Wednesday, the Federal Reserve lifted the fed funds rate by 25 basis points to a new range between 5.0% and 5.25% and left its door open for a potential rate pause at the next meeting. 

Stocks in New York closed down in a volatile session after the rate decision because the Fed did not provide any indication of future rate path trajectory and how high rates have to go. 

The rate uncertainty was compounded by growing anxieties about the U.S. lawmakers' failure in lifting the debt ceiling. 

The U.S. Treasury is expected to run out of cash as early as June and without the increase in debt ceiling the government operations may have to be closed for an unknown period.

 

Europe Indexes & Yields 

The DAX index decreased 0.7% to 15,699.79, the CAC-40 index fell 0.9% to 7,337.21 and the FTSE 100 index fell 0.8% to 7,724.85. 

The yield on 10-year German Bunds inched up to 2.26%, French bonds traded slightly higher to 2.86%, the UK gilts inched higher to 3.71% and Italian bonds advanced to 4.17%.

The euro edged higher to $1.106, the British pound to $1.257 and the Swiss franc to 88.50 cents.

Brent crude rose 13 cents to $72.45 a barrel and the Dutch TTF natural gas decreased €0.63 to €36.16 per MWh.

 

Europe Stock Movers 

ArcelorMittal SA declined 2.2% to €25.06 after the French steel maker reported a decline in sales and earnings in its latest quarter. 

Volkswagen Group increased 0.3% to €124.62 after the German automaker reported higher sales and the company confirmed its 2023 outlook. 

Casino Guichard Perrachon SA dropped 10.9% to €7.46 after the French retailer said sales declined in its latest quarter. 

Adecco Group AG decreased 2.5% to CH 28.65 after the Swiss staffing company reported mixed quarterly results.  

Novo Nordisk AS dropped 4.6% to kr1,069.0 after the Danish pharmaceutical company said it may curtail sale of its starter weight loss drug Wegovy to new customers. 

Revenue in the quarter increased to $7.69 billion and net income was $2.86 or $1.27 per share. 

Shell Plc increased 1% to 2,348.0 pence after the UK-based energy company reported higher-than-expected quarterly earnings despite the fall in energy prices.