European stocks made muted gains on Thursday morning in advance of a widely anticipated monetary policy decision by the European Central Bank.
The regional Stoxx 600 added 0.2 per cent, while Germany’s Dax index gained 0.1 per cent and London’s FTSE 100 rose 0.3 per cent. European bond markets were muted in early morning dealings, with the yield on Germany’s 10-year Bund, a proxy for eurozone borrowing costs, trading flat.
Those market moves came ahead of the ECB’s latest interest rate decision, due at 1.15pm BST.
Economists polled by Reuters anticipate a 0.5 percentage point increase in borrowing costs, based on consensus estimates, after the ECB lifted interest rates for the first time in more than a decade in July by a larger-than-expected half-point to zero. But several Wall Street banks have said they anticipate a bigger 0.75 percentage point increase.
ECB board member Isabel Schnabel told the Jackson Hole gathering of central bankers in August that the bank was prepared to raise interest rates to a level that would lead to higher unemployment and recession across Europe.
“The ECB hawks have managed to push the market towards expecting a [0.75 percentage point] hike today,” wrote analysts at ING. “Backing down may send the wrong signal given the greater weight that has been given to current inflation dynamics.”
Traders will also focus on the possible effects of the ECB’s policy on the euro, which was trading below parity with the dollar on Thursday at $0.998. ING expects a 0.5 percentage point rise, which could push the euro lower against the dollar. The greenback has strengthened this year on hawkishness from the Federal Reserve and its traditional status as a haven currency against a backdrop of stuttering global growth.
In Asian equity markets, Japan’s Topix bounced by 2.2 per cent, following US indices higher after the tech-heavy Nasdaq Composite and broad S&P 500 both added around 2 per cent on Wednesday. Hong Kong’s Hang Seng index slipped 1.1 per cent and Australia’s S&P/ ASX 200 added 1.8 per cent after the governor of the Reserve Bank of Australia said it would slow the pace of interest rate rises after five months of increases.
As the pound slipped to its lowest level since 1985, gilt prices continued to rise. The yield on the 10-year gilt rose 0.2 percentage points to 3.04 per cent.
US stock futures made small gains and the dollar index, which measures the currency against a basket of six others, slipped by 0.2 per cent.
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