LONDON (AFP/APP): Europe’s equities rebounded Wednesday as the European Central Bank began an emergency meet to discuss volatile eurozone bond markets and soaring inflation, while investors also braced for a major US rate hike.
Frankfurt, London and Paris stocks rallied and the euro rose against the dollar, as investors were reassured by news of the ad-hoc ECB gathering that started at 1000 GMT.
All three main indices had slid Tuesday on growing expectations that the Federal Reserve will move aggressively to combat inflation at the conclusion of its latest scheduled monetary policy meeting on Wednesday.
Bitcoin extended this week’s precipitous slide to approach the key level of $20,000 as investors continued to shun risky crypto assets, while oil prices retreated further on lower energy demand expectations.
Smacks of panic
Markets.com analyst Neil Wilson said the ECB meeting “smacks of panic and a lack of control — but the market is happy to see it happen”.
The borrowing costs of some eurozone countries have risen faster than those of others as the ECB tightens its monetary policy. The bank has vowed to prevent such “fragmentation”.
The ECB is not to due to raise eurozone interest rates or to end its massive bond-buying stimulus programme until July.
However, eurozone countries are already facing higher borrowing costs on government bonds.
Asian stock markets closed mixed Wednesday with investors on edge over a looming Fed decision that has taken on greater significance since forecast-busting US inflation recently sent shockwaves through world markets. Traders’ screens were awash with red at the start of the week after data on Friday revealed that US consumer prices had soared at the fastest pace in four decades.
That confounded hopes that US inflation was stabilising and intensified pressure on policymakers to act.
The news ramped up bets that the Fed would hike interest rates at a steeper and faster pace than expected as it struggles to retain credibility.
Before Friday’s data, the Fed had been tipped to lift borrowing costs by half a point when its policy meeting ends Wednesday but investors are now widely anticipating a three-quarter point increase, with some even suggesting one percentage point.
The moves fuelled worries that the tighter monetary conditions will deal a blow to the US economy and potentially send it into recession next year.
“There is no shortage of pessimism in the market and traders are on the edge as they know that central banks have made the biggest blunder by calling inflation transitory — and their current policy is going to cause a great deal of pain,” AvaTrade analyst Naeem Aslam told AFP.
