On Thursday the ECB increased its key interest rates from 0% to 0.75% in a bid to curb inflation which stood at an annual 9.1% in August. This large move shows the ECB is following in the Fed’s footsteps. "This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB’s 2% medium-term target," the ECB stated in its official statement.
U.S. stocks closed lower for the week as investors continued to digest hawkish messages from the Fed and a mixed U.S. payrolls report, released Friday. The report showed that monthly job gains in the U.S. (+315 000) were lower than July’s figure of +526 000, but still strong. The headline data was close to expectations of a gain of 300 000, while the unemployment rate rose to 3.7% from 3.5%, disappointing forecasts.
Global equity markets came under pressure on Friday, after Federal Reserve Chair Jerome Powell signalled that the Fed is going to keep raising rates to control the highest inflation in decades, regardless of what Wall Street thinks. The comments were made during the Kansas City Fed’s annual policy forum in Jackson Hole, confirming the Fed’s perceived taming of inflation as the bedrock of the U.S. recovery.
Official data Wednesday showed UK inflation rising at an annual pace of 10.1% in July, as soaring food and energy prices saw inflation hit double digits for the first time in 40 years.
The July U.S. inflation report provided some market respite, after consumer price inflation (CPI) fell from 9.1% y/y to 8.5% y/y in July while the month-on-month print showed consumer prices were unchanged from June.
U.S. stocks rallied over the week despite another significant 75-basis-point rate hike from the Federal Reserve (Fed) and news that the U.S. economy contracted for a second straight quarter.
The European Central Bank (“ECB”), the central bank of the 19 nations that share the euro currency, raised its benchmark rate by 50 basis points on Thursday, traders had expected a smaller hike of 25 basis points.
U.S. inflation accelerated in June, ahead of expectations.