On Thursday, the continent-wide STOXX 600 index climbed, thanks to a series of positive corporate results, even though gains remained limited. This was because investors were still taking in a bigger-than-expected rate increase from the ECB amidst increasing concerns about an economic recession.
The central bank’s decision
It was the first rate hike that the European Central Bank made in about 11 years, as rates increased to 0%. The central bank broke its own guidance for a rate hike of 25 basis points for controlling inflation that has risen to a record high of 8.6%.
However, it should be noted that no guidance was provided regarding the rate increase to expect in September. The only thing that the ECB said regarding this matter was that they will make further hikes and decisions in every meeting.
Market analysts said that this decision of the ECB showed that the bank was less concerned about being predictable and more about its credibility. They said that this was more important than guidance about the future.
It is expected that another rate hike of 50 basis points will happen before the beginning of the winter season. But, no rate increases are expected after. It appears that instead of a long rate increase journey, the normalization of ECB’s policy is going to be a short one.
European index and stocks
The European STOXX 600 index rose 0.4% after it had seesawed throughout the session in the aftermath of the decision announced by the European Central Bank and the press of the ECB President, Christine Lagarde.
A new tool was also unveiled by the ECB in order to cushion the consequences of the increase in borrowing costs on nations part of the currency bloc that are already indebted. The anti-fragmentation tool is called the Transmission Protection Instrument and it is meant to keep fragmentation under control.
Italian shares had recorded declines of 7.2% earlier in the trading session after the resignation of Prime Minister Mario Draghi. This resulted in more political turmoil in the country. However, the stocks were able to trim their gains and ended the day lower by 2.9%. The most likely outcome will be an early election in September or October.
The benchmark FTSE MIB index of Italy recorded declines of 3% earlier but ended the day down by 0.7%.
Relief
There was some relief on Thursday when the Nord Stream 1’s gas supply resumed from Russia to Germany, after being shut down for 10 days because of annual maintenance. This eased concerns about an energy supply shortage.
The STOXX 600 has fallen almost 13% this year over worries about the energy supply, the possibility of further monetary policy tightening to control inflation resulting in economic inflation and a weaker euro. The markets have remained volatile because of these risks. There was also an 11.1% increase in the shares of Viaplay Group after upbeat quarterly profits were posted by the Swedish media group and it also disclosed that its subscriber numbers had improved.