European Markets Trended Lower After ECB Signaled More Rate Hikes

Bridgette Randall
15 Jun, 2023
Frankfurt

European markets remained under pressure and the central bank lifted rates higher.

Market averages in London, Paris and Frankfurt traded down after the rate decision was announced and more rate hike worries dragged the indexes lower. 

“We are not thinking about pausing," said ECB president Christine Lagarde at a press conference after the rate decision. 

The central bank also revised higher its estimate of the headline inflation and core inflation for 2023 and lowered its economic growth outlook. 

Investors largely ignore the improvement in international goods trade deficit data in April after imports fell at a faster pace than expected. 

Tech stocks led decliners in trading across the region followed by declines in construction and telecom stocks. 

In other news, China lowered its medium term lending facility rate by 10 basis points to revive the faltering economic growth. 

The People's Bank of China lowered its one-year medium term rate following the decision to lower short term 7-day reverse repo rate by 10 basis points to 1.9%  on Tuesday.  

The central bank is expected to lower its loan prime rate by a similar amount on June 20. 

 

ECB Lifted Reference Rates 0.25% 

The European Central Bank decided to lift its lending rate for the eighth time in a row and revised its annual inflation outlook and lowered its annual economic growth estimate for 2023. 

The Governing Council decided to lift the three key ECB interest rates by 25 basis points. 

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 4.00%, 4.25% and 3.50% respectively, with effect from June 21. 

The central bank also estimated average annual inflation of 5.4% in 2023 before it cools to 3.0% in 2024  and 2.2% in 2025.

Core inflation, excluding food and energy, is estimated to average 5.1% in 2023 and 3.0% in 2024. 

Economic growth was revised slightly lower to 0.9% in 2023 and to 1.5% in 2024. 

 

Eurozone Trade Deficit Shrank In April 

The Euro Area international goods trade deficit in April shrank to €11.7 billion from €34.5 billion a year ago.  

Exports declined 3.6% to €216.0 billion and imports dropped 11.9% to €227.7 billion. 

In January to April 2023, euro area exports of goods to the rest of the world rose 5.4% from a year ago to €940.0 billion, and imports fell 2.9% to €957.2 billion. 

Exports to the U.S. increased 2.5%, to China advanced 2.5%, to Turkey soared 26% and the UK jumped 6% but shipments to Russia declined 32% and Japan dropped 12.5%. 

Imports from Russia plunged 73% and from China declined 10.5%. 

 

Europe Indexes & Yields 

The DAX index decreased 0.6% to 16,205.64,  the CAC-40 index declined 0.8% to 7,270.65 and the FTSE 100 index increased 0.07% to 7,608.02.

The yield on 10-year German Bunds inched higher to 2.50%, French bonds traded higher to 3.03%, the UK gilts edged up to 4.42% and Italian bonds increased to 4.18%.

The euro edged lower to $1.08, the British pound to $1.26 and the Swiss franc to 90.26 cents.

Brent crude increased $0.82 to $74.02 a barrel and the Dutch TTF natural gas increased €7.60 to €46.0 per MWh.

 

Europe Stock Movers

Informa PLC increased 2.5% to 722.0 pence after the publisher and event organizer lifted its annual outlook. 

Origin Enterprises Plc gained 1.7% to €3.51 after the agriculture services provider said revenue in the fiscal year 2023 increased to €1.9 billion.

Halma Plc declined 4.90% to 2,310.0 pence after the company posted lower net income attributable to stockholders. 

H&M Group increased 3.3% to kr150.50 after the Swedish apparel retailer said net sales increased 6% in the three months to May. 

Legal & General Group Plc declined 2.4% to 231.97 pence after the company appointed an outsider as its next chief executive.

Siemens AG added 0.3% to €164.82 after the German industrial conglomerate said it plans to invest €2 billion and build a new manufacturing plant in Singapore and expand its production facility in Chengdu, China. 

Hugo Boss AG declined 2% to €68.70 after the German apparel designer and retailer said it is ahead on its target to reach €4 billion in sales by two years.