While advances in banks helped limit losses, rate-sensitive technology companies fell on Thursday as investors anticipated additional interest rate increases by major central banks.
European Shares Dip on Rate Jitters: The technology sector declined 1.2%, and the STOXX 600 index for all of Europe dipped 0.1%. Eurobank shares increased 0.6%.
Stock prices were affected by concerns that the U.S. Federal Reserve might adopt a hawkish posture at its meeting the following week and by predictions that the European Central Bank would continue to tighten its monetary policies.
The Bank of Canada increased its overnight rate on Wednesday to a 22-year high of 4.75%, and markets and economists quickly predicted yet another increase for next month.
The lender-heavy indices in Italy and Spain increased by roughly 0.4% each and were among the early leaders.
Jim Reid and Henry Allen, strategists at Deutsche Bank, wrote in a note that the most recent developments “have also run against the prevailing narrative that central banks are on the verge of pausing their rate hikes, particularly given Canada was one of the first to signal a pause back in January formally.”
The key question is whether the Fed will keep interest rates on hold after ten consecutive rises or follow up with a boost of their own next Wednesday.
Recent Developments in Global Markets and Stock Performance
The Reserve Bank of Australia (RBA), among other significant central banks, shocked markets by raising interest rates in May and again this week after suspending a nearly year-long tightening trend in April.
There is currently a 69% likelihood, according to traders in the money market, that the Fed will raise rates in July rather than June. About 97% of traders expect the ECB to raise interest rates by 25 basis points the following week.
Early in the morning, the policy-sensitive German two-year yield increased by as much as two basis points to 3%, its highest level since March 15.
As reported by Reuters, Vodafone slid 4.5% after reaching a one-week high on Wednesday, contributing to the 1.1% decline in the telecom sector. Vodafone and Hutchison are reportedly nearing completion of a merger agreement for their British operations.
Evotec, a German biotech business, increased 7.6% to the top of the STOXX 600 after Citigroup upgraded the stock to a “buy” rating from “neutral” due to an appealing outlook.