On Monday, there was a drop in European shares, with tech stocks leading declines, but hawkish comments from central bankers pushed up bond yields.
This is because the comments fueled worries about the aggressive measures that the banks may take for curbing inflation, even though there is a risk of a recession.
Rate hike possibilities
The continent-wide STOXX 600 index shed 0.8% that saw it go down to a low of a month, as a 2.4% drop was recorded in tech stocks that tend to be sensitive to interest rates.
There was also a rise in 10-year German government bond yields by 10 basis points, which saw them reach a high of two months.
Isabel Schnabel, an ECB board member, had warned on Saturday that forceful action was required from central banks for combating inflation, even if it means triggering an economic recession.
Other policymakers, such as Francois Villeroy, who is a member of the governing council, and Martins Kazaks, who is a policymaker, also hinted at a big rate hike in the next month.
Their comments came after Jerome Powell’s warning on Friday about the US Federal Reserve raising interest rates and sticking to them for restricting growth.
A two-third chance has been priced in by markets of an interest rate hike of 75 basis points by the ECB in September, which is higher than 24% in the previous week.
Market analysts said that the interest rate decision of the European Central Bank (ECB) will highlight that they are trying to kill growth in order to bring down current inflation figures.
On Wednesday, flash consumer price index (CPI) data for the month of August is scheduled to release and it is expected to show an uncomfortably high rate of inflation in the euro zone.
Market analysts pointed out that ECB policymakers had not specified the magnitude of the rate hike to expect in the next month.
This was likely because they would first assess the inflation data and the ECB’s economic forecasts before they make a decision.
As far as stocks are concerned, Uniper once more asked the German government to offer more financial help. Thus, the bill to help out the utility group has risen to a whopping 19 billion euros.
This is because the utility’s cash reserves have been eaten up by the rise in power and gas prices. There was a 3% rise in the shares of the utility company.
The STOXX 600 index recorded a broad-based sell-off for the day and the slimmest losses were seen in the real estate sector.
This is because it is regarded as a safe bet in times of volatility and uncertainty and is considered ‘defensive’.
The last two sessions have seen stocks lose 3% of their value. This is because of a combination of factors like the looming risks of recession, the energy crisis in Europe, and the stubbornly high inflation numbers.
As for markets in Britain, they were closed for a holiday on Monday.