Connect with us
Finance Digest is a leading online platform for finance and business news, providing insights on banking, finance, technology, investing,trading, insurance, fintech, and more. The platform covers a diverse range of topics, including banking, insurance, investment, wealth management, fintech, and regulatory issues. The website publishes news, press releases, opinion and advertorials on various financial organizations, products and services which are commissioned from various Companies, Organizations, PR agencies, Bloggers etc. These commissioned articles are commercial in nature. This is not to be considered as financial advice and should be considered only for information purposes. It does not reflect the views or opinion of our website and is not to be considered an endorsement or a recommendation. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third-party websites, affiliate sales networks, and to our advertising partners websites. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all articles or links hosted on our site as a commercial article placement. We will not be responsible for any loss you may suffer as a result of any omission or inaccuracy on the website.

NEWS

No Santa rally for markets as central banks dampen peak rate hopes

Published On :

By Naomi Rovnick and Dhara Ranasinghe

LONDON (Reuters) -Forget a year-end rally in financial markets. The message from major central banks is loud and clear: the battle to tame inflation is far from over.

Central banks in the United States, euro zone, Britain and Switzerland met on Wednesday and Thursday and all slowed the pace of aggressive rate moves.

But their signalling was not what markets, which have rallied hard in recent weeks on the notion of peak inflation and peak interest rates, wanted to hear.

European Central Bank President Christine Lagarde said to expect more 50-basis-point rate increases for a period of time and that the ECB was not “pivoting” yet.

It hiked rates by 50 bps on Thursday after delivering two back-to-back 75 bps moves to tame double-digit inflation.

Government bond markets took a beating. As prices slid, the yields on interest rate-sensitive two-year German bonds surged 24 bps, their biggest one-day jump since 2008.

Italian borrowing costs were last up almost 30 bps at 4.13%, while European shares slid nearly 3% and stocks on Wall Street tumbled 2%.

The reaction in European bond markets has been brutal,” said Antoine Lesne, head of EMEA strategy and research for State Street’s SPDR ETF business.

A slight drop in euro area inflation in November, to an annual rate of 10%, had sparked market speculation that the ECB might pivot away from its fight against soaring prices.

The market had been getting ahead of itself about the euro area in the past few weeks … they’re now repricing the fact that the ECB is going to have to remain hawkish,” Lesne said.

Ed Hutchings, head of rates at Aviva Investors, said he expected peripheral European bonds to “struggle” from here and European bonds in general to be somewhat less supported.

TOO COMPLACENT?

Federal Reserve chief Jerome Powell meanwhile warned on Wednesday that recent signs U.S. inflation may be slowing have not brought any confidence yet that the fight has been won.

Forget the Santa rally … the Fed looks more like the Grinch this Christmas,” said John Leiper, CIO of Titan Asset Management.

On Thursday, the S&P 500 fell to its lowest level in a month. On Tuesday, the index had jumped as much as 2.76% to a three-month high as an unexpectedly small rise in consumer price inflation buoyed hopes that the Fed could soon dial back its rate hikes. The S&P has lost more than 16% this year.

Switzerland’s central bank chief Thomas Jordan also weighed in after a 50 bps hike, saying it was too early to “sound the all-clear” on inflation.

It does feel like the major central banks, including the Fed, are having to fight a market narrative of relief that we’ve hit peak rates,” said Hetal Mehta, senior European economist at Legal & General Investment Management.

Recent data showing inflation in the United States and Europe easing slightly caused bond yields to come off multi-year highs and the S&P 500 to rally over 10% from a low in October.

While U.S. 10-year Treasury yields are still set to end the year up 200 bps, they are down 32 bps in Q4, in what is set to be their biggest quarterly drop since early 2020. German benchmark Bund yields are also up 200 bps over 2022 but stand almost 50 bps lower than a multi-year high of 2.5% reached in October.

Such sharp moves loosen the very financial conditions that central banks are trying to tighten in order to contain inflation.

Speaking at Thursday’s post-decision news conference, the ECB’s Lagarde referenced financing conditions and said further tightening was needed.

A market rally would be an easing of financial conditions that jars with the idea that they (policymakers) need to get interest rates into restrictive territory,” said Mehta.

(Reporting by Dhara Ranasinghe and Naomi Rovnick; Editing by Catherine Evans)

Continue Reading

Why pay for news and opinions when you can get them for free?

       Subscribe for free now!


By submitting this form, you are consenting to receive marketing emails from: . You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

Recent Posts