European equities slipped ahead of a European Central Bank decision that will put the region’s monetary policy on a path of tightening and help close the gap with global peers.
The Stoxx Europe 600 dropped 0.5%, with property firms and retailers leading declines. S&P 500 and Nasdaq 100 contracts pushed higher after Wall Street snapped a two-day climb. Stocks in China and Hong Kong — including a fizzling tech rally — sapped Asian shares.
While officials are not expected to raise official borrowing costs, President Christine Lagarde signaled in a blog post last month that the central bank will end bond purchases this month, and hike once in July and again in September, lifting the deposit rate from minus 0.5% to zero.
Some investors see a new tone reaching beyond the official line as central bankers succumb to huge pressure to rein in record inflation at more than four times their target of 2%. Peers at the Federal Reserve, Bank of Canada, and Reserve Bank of Australia have hiked in 50-basis point increments this year.
“Chances are that the ECB will have a hawkish pivot today,” Carol Kong, a strategist at Commonwealth Bank of Australia, said on Bloomberg Television.
Benchmark Treasury yields held above 3%, while New Zealand’s 10-year yield touched the highest level in seven years. German bunds were steady before the ECB decision.
Oil wavered near $122 a barrel as a robust market for refined fuels around the world offset renewed lockdown in parts of Shanghai, its first major restrictions on movement since the financial hub exited a two-month shutdown at the start of June.
Markets remain fixated on the risk that central banks intent on cooling inflation snuff out economic recoveries in the process. Money markets have priced in 36.5 basis points of tightening to the ECB’s rate by next month’s meeting, just short of a 50% chance of a half-a-percentage point increase, which would be the first since 2000.
One beneficiary of a hawkish pivot by the ECB would be the euro. The common currency has been bogged down by concerns over euro-area growth while a resurgent dollar and hawkish Fed pushed it to a five-year low against the US currency last month. The euro traded little changed against the dollar at $1.07.
“If we do see Christine Lagarde leaning toward a 50 basis-points hike in July, that’s going to be very supportive of the euro-dollar,” Kong said.
Elsewhere in foreign-exchange markets, the dollar-yen pair steadied Thursday, but yen weakness this year has put the 2002 high of 135.15 in play.
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Key events to watch this week:
- European Central Bank rate decision, Christine Lagarde briefing, Thursday
- US CPI, University of Michigan consumer sentiment Friday
- China CPI, PPI Friday
Some of the main moves in markets:
- The Stoxx Europe 600 fell 0.5% as of 10:32 a.m. London time
- Futures on the S&P 500 rose 0.3%
- Futures on the Nasdaq 100 rose 0.4%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The MSCI Asia Pacific Index fell 0.3%
- The MSCI Emerging Markets Index fell 0.1%
- The Bloomberg Dollar Spot Index was little changed
- The euro was unchanged at $1.0716
- The Japanese yen rose 0.5% to 133.63 per dollar
- The offshore yuan rose 0.4% to 6.6744 per dollar
- The British pound fell 0.2% to $1.2515
- The yield on 10-year Treasuries was little changed at 3.02%
- Germany’s 10-year yield was little changed at 1.36%
- Britain’s 10-year yield advanced two basis points to 2.26%
- Brent crude was little changed
- Spot gold fell 0.2% to $1,849.91 an ounce
Source By: Bloomberg