European Markets Jumped 1% After ECB Hiked Rates As Expected

Bridgette Randall
27 Jul, 2023
Frankfurt

European markets traded higher and the European Central Bank hiked rates for the ninth time in a row. 

The ECB raised main rates by 25 basis points to 4.25%, the highest rate since October 2008 and deposit facility rate by 25 basis points to 3.75%, a 22-year high.  

The rates will be effective from August 2. 

The central bank acknowledged in the statement that increases in rates are increasingly "dampening demand" but inflation is still too high and will come down gradually over the remainder of the year. 

"While some measures show signs of easing, underlying inflation remains high overall. 

The past rate increases continue to be transmitted forcefully: financing conditions have tightened again and are increasingly dampening demand, which is an important factor in bringing inflation back to target," the ECB noted in the statement. 

The central bank has tightened rates by 425 basis points since July 2022, the fastest pace of rate increase in its history. 

But, the central bank cautioned in the statement and said inflation is expected to "remain too high for too long" without further elaborating   

Market participants reacted to the latest batch of earnings after automakers, aviation and financial sector companies released earnings. 

The Federal Reserve hiked its key lending rate range by 25 basis point to between 5.25% and 5.5% and held out for more hikes in the future if the economy demanded. 

Despite the eleven rate hikes over the last sixteen months, inflation is still hovering near 5%, significantly above the Fed's target rate of 2%.  

 

Spain's Jobless Rate at 15-year Low, Retail Sales Edged Higher 

Spain's jobless rate fell to 11.6% in the second quarter of 2023 from 13.3% in the previous three-month period, the lowest since 2008, the National Statistics Institute INE reported Thursday.

The jobless rate in the second quarter was 12.5%.

The number of unemployed people decreased by 365,000 to 2.76 million, while the number of employed rose by 604,000 to 21.1 million. 

The labor force participation rate edged up to 59% in the second quarter from 58.6% in the previous quarter. 

Spain's retail sales edged up slightly in June amid rising demand for non-food products, the INE reported in a separate report Thursday. 

Seasonally adjusted retail sales increased 6.4% in June, after rising 6.1% in May. 

Sales of non-food products soared 14.8% but food items sales rose at a slower pace of 1.5%. 

 

Europe Indexes & Yields

The DAX index increased 0.9% to 16,282.34, the CAC-40 index advanced 1.3% to 7,412.32 and the FTSE 100 index rose 0.3% to 7,699.89.  

The yield on 10-year German bonds decreased to 2.44%, French bonds traded lower to 2.99%, the UK gilts edged down to 4.28% and Italian bonds increased to 4.10%.

The euro edged higher to $1.11, the British pound to $1.29 and the U.S. dollar fetched 85.69 Swiss cents

Brent crude increased $0.85 to $83.76 a barrel and the Dutch TTF natural gas increased €0.87 to €28.41 per MWh.

 

Europe Stock Movers

Barclays Plc declined 3.9% to 157.64 pence and the bank said it expects to earn less interest income in the UK on the higher interest rates and  stubborn inflation. 

BNP Paribas SA jumped 3.5% to €60.16 after the company announced its plan to start stock repurchase starting next month.  

Airbus SE declined 2.3% to €130.0 after the aircraft maker reported a fall in net income for the fist-half. 

Ipsen SA increased 1.5% to €112.10 after the pharmaceutical company lifted its annual outlook. 

Safran SA jumped 1.8% to €147.80 after the jet engine maker revised higher its full-year outlook for the current fiscal year. 

Volkswagen AG declined 2.6% to €145.40 after the automaker lowered its annual estimate and Mercedes Benz Group AG jumped 2.5% to €71.64 after the luxury automaker revised higher its full-year estimate. 

Nestle SA jumped 1.9% to CHF 107.28 after the Swiss food and beverage company increased its organic sales growth estimate.