European Stocks May Fall Following ECB Rate Hike

After an announcement by the European Central Bank (ECB) of a rise in interest rates of 50 basis points, which marked the first increase in interest rates by this institution in 11 years, the performance of European markets on Thursday was uneven.

By the middle of the afternoon, the pan-European Stoxx 600 was trading close to where it started, with stocks in the travel and leisure industry falling by 1.9 percent while companies in the media industry rising by 1.3 percent.

After being in negative territory since 2014 as the single currency bloc grappled with a sovereign debt crisis and the coronavirus epidemic, the European Central Bank (ECB) raised its rate, bringing its deposit rate to 0%. Prior to this, the rate had stayed in negative territory.

The decision is designed to tackle excessive inflation in the euro zone; but, it comes against the backdrop of slowing economy, the war in Ukraine, and concerns to oil supply.

After that, at 14:45 Central European Summer Time, ECB President Christine Lagarde will hold a press conference.

According to Hinesh Patel, portfolio manager at Quilter Investors, the rate hikes that the ECB is planning on implementing will not do anything to alleviate what is primarily an energy problem.

“The ECB has waited far too long relative to the Fed and the Bank of England, thereby creating additional pressure on the EUR which is adding to inflationary pressure. The stall in industrial activity indicates that this rate hike is likely to have minimal impact,” he said.

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“Headline inflation is now creeping into core which will be gravely concerning to the ECB, especially as costs now represent the most pressing problem for corporates in the region – particularly for the likes of Italy.”

After a number of parties in the governing coalition abstained from a vote of confidence that was aimed at renewing and reuniting the fractious alliance, Italy has been thrown into fresh political uncertainty. Prime Minister Mario Draghi is expected to tender his resignation on Thursday. This comes after Italy was already in the midst of a political crisis.

Draghi prevailed in the vote, but a significant number of senators declined to take part, which brought the national unity government dangerously close to falling apart. There is now the possibility that early elections will take place in September or October.

The region is still being clouded by ever-increasing prices. Inflation in the United Kingdom reached yet another record 40-year high in June, according to figures released on Wednesday. This came as the cost of both food and energy continued to skyrocket, further aggravating the country’s long-standing crisis with its cost of living.

Roche, ABB, Givaudan, SAP, Ocado, and AngloAmerican among the companies that reported their earnings on Thursday.

Following the completion of its acquisition of the sports streaming service Premier Sports located in the United Kingdom, the share price of the Swedish media business Viaplay Group increased by 10.6 percent.

After the departure of CEO Oscar Werner, the value of the Swedish cloud communications business Sinch, which was previously ranked last on the index, dropped by more than 12 percent.

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