Morning Minutes

Stocks Pause as ECB Raises Interest Rates




Yesterday’s US market rally, which saw major indices snap multi-day losing streaks with gains of 1.4% to 2.1%, which appears to have been a trading bounce, easing oversold conditions as there has been limited follow-through overnight and into this morning. Asia Pacific trading was mixed as the Nikkei rose 2.3% but the Hang Seng fell 1.0%. US Index futures are currently flat to down 2.0%.

The spotlight so far this morning has been on Europe, where the Dax is down 0.2%, up off lows from earlier in the day, and the FTSE is up 0.1%. The European Central Bank raised its benchmark interest rate by 75 basis points, which was at the high end of expectations, to 1.25%. It also lifted the deposit rate back up above zero for the first time since 2012 setting it at 0.75%. In the statement, the ECB Governing Council indicated it expects to raise interest rates further over the next several meetings. It also indicated that inflation remains a growing problem and raised its inflation forecasts upward to 8.1% for 2022, 5.5% for 2023 and 2.3% for 2024, suggesting that even if inflation slows, it could take some time for it to return to the bank’s 2.0% medium-term target. The German 10-year Bund yield has moved up to 1.60% on the news and the Euro has climbed back up to par with the US Dollar. European markets may remain active with ECB President Lagarde speaking and holding a press conference this morning.   

Commodities are trying to rebound from recent declines this morning with varying degrees of success. WTI crude oil is up 0.6%, trading near $82.50/bbl and Natural gas is down another 0.2%, trading below $8.00/mmbtu ahead of this morning’s weekly US inventory reports. In metals action, copper is up 1.9%, platinum is up 1.6% and gold is up 0.2%.

US weekly jobless claims came in better than expected (222K vs street 240K). Fed Chair Powell is speaking this morning who could provide more insight into the US economy and monetary policy. It should be noted, however, that a parade of hawkish Fed speakers including Vice-Chair Brainard, were ignored by traders yesterday. China reports inflation data tonight and tomorrow morning brings the monthly Canadian employment report. 

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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