ECB Raised Key Interest Rate by 75 bp as Expected

U.S. stocks traded mostly lower this morning, with the Dow Jones dropping 100 points on Thursday. They unexpectedly broke their recent losing streak yesterday, as the Fed’s latest report on the state of the economy known as Beige Book, and comments from Fed Vice Chairman Lael Brainard raised hopes policymakers would ease their monetary tightening agenda before going too far in stifling economic growth. Markets are apparently pricing in a 75 bps rate rise by the Fed in its meeting on 20-21 September as Richmond Fed President Thomas Barkin, Boston Fed President Susan Collins, Cleveland Fed President Loretta Meester, and Fed Vice Chair Lael Brainard, made clear in different speeches on Wednesday that they are not convinced that inflation has peaked. Meanwhile, Fed Chairman Jerome Powell and his FOMC colleagues will probably have to push unemployment significantly higher in order to hit their 2% inflation target. Goldman Sachs now expects the Fed to hike by 75 basis points this month and 50 basis points in November, up from their previous forecasts of 50 basis points and 25 basis points respectively.

The rally was broad-based, with every stock in the Dow except Chevron (CVX) and Verizon Communications (VZ) advancing. Shares of 3M (MMM) and Nike (NKE) moved up 3% to the close. Apple (AAPL) shares rose as the tech giant was widely hailed after introducing its new iPhones 14 series, AirPods, and Apple Watches.

Twitter (TWTR) shares also rebounded as a judge rejected a call by Elon Musk to delay the start of the court trial demanding the plaintiff to complete his planned $44 billion purchase of the company. Major cryptocurrencies also advanced, but only marginally, with the price of Bitcoin (BTCUSD) up over 2% just shy of $19,300.

European shares are trading lower today. At the time of writing, the eurozone’s Stoxx 600 is dropping by 0.22%, as the British FTSE 100 fell 0.33%, while the German DAX dropped 1.05% and French CAC 40 eased by 0.48%. The ECB has expectedly raised the interest rate by 75 bps to 1.25%, in line with the expectations. The pan-European monetary watchdog also hiked the deposit facility (DF) rate by 75 bps to 0.75%, higher than the expected 0.50%. Its marginal mending facility (MLF) rate now reached 1.50%.

On macro side, France recorded a current account deficit of €5.3 billion in July versus a revised €1.5 billion gap in June, while trade gap widened to €14.54 billion in July versus a revised €13.08 billion in the previous month. Payroll employment in France’s private sector rose by 0.5% to 20.72 million in Q2.

In the UK’s pound, the GBP are retreating as much as 0.8% to $1.1494 as of now, the lowest level since 1986. The level of borrowing required to finance new Prime Minister Liz Truss’ energy cap for households and business and Bank of England Governor Andrew Bailey telling the Treasury Select Committee that there was little the Bank of England, BoE, could do to stop the UK falling into recession this year, seemed to have led to a loss of confidence in Sterling.