On Wednesday, European stocks climbed with banks in the lead, as the European Central Bank (ECB) announced that its Governing Council that sets rates would be conducting an unscheduled meeting to talk about the recent sell-off witnessed in the government bond markets.
Stocks in Europe Rally
There was a 1.5% increase in the eurozone share index, while the Europe-wide STOXX 600 index also rose by 1%. There was also a rally in Italian bank’s stocks after they had taken a hit over fears of surging debt costs in Rome. Meanwhile, there was a sharp decline in government bond yields. There was an increase of 4.3% to 5.6% recorded in shares of BPER Banca, Intesa Sanpaolo and Unicredit, while a 5% rise was also seen in the Italian banking index.
Market analysts said that it was obvious that the market was expecting some sort of intervention from the ECB. The last week has seen a sharp fall in the shares of banks in the eurozone. This was because of a sell-off seen in the bond markets in Southern Europe, after the ECB’s announcement last week that no tool was needed for helping weaker economies in coping up with the increased borrowing costs. The bank issued the statement after putting an end to its bond-buying program and announcing a rate hike in the next month.
The surprise meeting of the ECB was scheduled to occur at 0900 GMT, but sources with knowledge of the matter said that it was not apparent if they would publish a statement, or not. Experts said that it was a good thing for the ECB to step up, but if they don’t deliver important details, the bond market would continue to see a huge sell-off.
The Fed’s Meeting
The US Federal Reserve is also meeting on Wednesday for its policy decision and its announcement will come at 1800 GMT. Most investors have already priced in a hike of 75 basis points in the interest rate, instead of 50 basis points, following the hotter-than-expected inflation numbers on Friday.
Tuesday saw the STOXX 600 record its sixth straight session of losses because of worries that an aggressive rate hike by the Fed would push the largest economy in the world into recession. The outlook for the European as well as the global economy has already become clouded because of the Russia and Ukraine conflict, the coronavirus restrictions in China and soaring inflation worldwide. Therefore, the STOXX 600 has already declined by 16% this year.
There was also a 15.5% drop in Getinge after the Swedish medical equipment manufacturer reduced its sales forecast for the year. The second-biggest fashion retailer in the world, H&M also declined by 4.4%. This was despite the fact that the company posted a higher-than-expected increase in its sales for the quarter.
Investors are now waiting for the Fed’s policy decision and the press conference of Jerome Powell to get insight into the possibility of a recession in the next few months.