In a financial twist that left the market’s predictions spinning, Christine Lagarde’s European Central Bank (ECB) shook things up last week. While many expected a different tune, the ECB decided to crank up its key interest rates for the tenth time in a row despite concerns about the economy’s activity. With its prices increasing at more than twice the target rate, the ECB felt it the most prudent decision for the zone’s economy despite the high borrowing costs and a downturn in the Chinese economy weighing on the overall economic activity. The Eurozone interest rates took a 25bps leap from 4.25% to 4.5%, while its key deposit facility rate hopped from 3.75% to 4%.
But, alongside this hawkish surprise, the ECB dropped a rare dovish note, suggesting that these new rates might play a significant role in taming the soaring inflation, currently at an elevated 5.3% versus the 2% target. Lagarde mentioned duration, suggesting that rates could stay elevated at this level for an extended amount of time. However, with the potential of a pause in the next meeting, investors rejoiced as European equities ticked upward, anticipating a possible pivot in the ECB’s rate hike spree.
And now, all eyes turn to the Federal Reserve’s upcoming decision on Wednesday, where the stage is set for an anticipated pause at 5.25% – 5.5% for the Federal Funds Rate, with the CME FedWatch Tool attributing a 99% probability in favour of this decision. Meanwhile, on Thursday, the Bank of England takes its turn in the spotlight, with consensus expecting a hike from 5.25% to 5.5%. While the respective decisions could move the market, the real showstopper could be the commentary from Jerome Powell and Andrew Bailey, similar to the ECB decision last week, as they could reveal the economic landscape’s backstage secrets as we journey forward. With the US experiencing a solid uptick in the oil price, and elevated inflation levels, a hawkish tone is expected in the outlook, which could pose a challenge to the equity market in the upcoming week.
Sources: Koyfin, CME Group, ReutersPiece written by Tiaan van Aswegen, Trive Financial Market Anal
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from
