European Markets Drop 1%, UK and Switzerland Held Rates, Norway and Sweden Hiked Rates by 0.25%

Bridgette Randall
21 Sep, 2023
Frankfurt

Market mood across Europe soured after the growing realization that central banks are not done  with their aggressive rate hike campaigns. 

European markets plunged more than 1% and the euro declined to a six-month low and the yields on Euro Area bonds advanced to multi-month highs. 

The U.S. Federal Reserve held its target rate range steady for the second time in a row between 5.25% and 5.50% but held out for one more rate hike in the year. 

But policymakers' views on interest rates in 2024 weighed on the market after the Federal Reserve forecasted two rate cuts in 2024, fewer than previously estimated in June.  

Despite higher rates, committee members do not see a recession in 2023 and 2024.

The policy committee also sharply revised higher its 2023 economic growth outlook to 2.1% from the June estimate of 1.0% and 2024 growth to 1.5% from 1.1%. 

 

Switzerland Rates Steady, Norway and Sweden Hiked Rates

Higher-for-longer rate worries gripped market sentiment after the Swiss National Bank unexpectedly held its interest rate at 1.75% but said more rate hikes may be needed to control inflation. 

The central bank held its inflation outlook at 2.2% in 2023 and 2024 and estimated economic growth around 1% in 2023. 

However, Norgesbank in Norway and Riksbank in Sweden lifted rates by 25 basis points. 

The Monetary Policy and Financial Stability Committee in Norway raised the policy rate from 4.0 to 4.25% and Governor Ida Wolden Bache said another rate hike is likely after the December meeting because inflation is significantly higher than the 2% target. 

Riksbank lifted its policy rate by 25 basis points to 4.0% and said another rate hike may be needed after the policy meeting in November. 

 

Bank of England Held Rates at 5.25%

The Bank of England held its rate steady at 5.25% in a 5-4 vote deciding to review the impact on the economy of the cumulative rates. 

The policy committee forecasted inflation to cool in the coming months largely because of weaker inflation in food and energy prices, despite the resurgent energy prices in the last month. 

The committee also voted to reduce bonds held by the central bank by an additional £100 billion after lowering holdings by £80 billion in the twelve months ending in September. 

The Bank of England held £759 billion of UK government bonds as of Sept 20, 2023. 

 

Europe Indexes & Yields

The DAX index decreased 1.1% to 15,599.24, the CAC-40 index fell 1.5% to 7,220.30 and the FTSE 100 index declined 0.7% to 7,679.40. 

The yield on 10-year German bonds increased to 2.73%, French bonds traded higher to 3.27%, the UK gilts edged up to 4.29% and Italian bonds rose to 4.51%.

The euro edged lower to a three-month low to $1.065, the British pound to $1.236 and the U.S. dollar fetched 90.58 Swiss cents.

Brent crude decreased $0.59 to $92.63 a barrel and the Dutch TTF natural gas declined €0.63 to €36.65 per MWh.

 

Europe Stock Movers 

Mining and resource companies were in focus after the dollar index rebounded to a six-month high and energy prices turned lower. 

Glencore, Antofagasta and Anglo American declined between 1% and 2%. 

BP Plc and Shell Plc declined about 1% after crude oil prices turned lower after flirting with a one-year high two days ago. 

Essentra Plc gained 2.3% to 151.0 pence after the plastics and fiber products maker announced the acquisition of Italy-based and family owned BMP s.r.l for Є33 million in cash with additional payments based on earnings milestones.  

NEXT plc increased 3.2% to 7,344.0 pence after the company revised higher its earnings outlook for the third time on improving sales. 

Casino Guichard Perrachon SA declined 8.2% to €1.51 after the French grocery retailer announced its five year plan ending in 2028.  

ABN AMRO Bank NV decreased 1.3% to €13.56 and the Dutch lender appointed Ton van Nimwegen as its chief operations officer and member of the executive board for four years.

Valneva SE declined 3.4% to €5.98 after the French vaccine maker announced a loss in the first-half. 

Delivery Hero SE increased 2.8% to €32.80 after the delivery service company confirmed talks to sell Foodpanda's business in select Southeast Asia markets. 

Electrolux AB decreased 1% to €9.67 after the Swedish home appliance company agreed to sell its manufacturing facility in Memphis, Tennessee for $61 million to a U.S. based investment management company.