ECB Policymakers Fear Recession And Will Reduce The Pace Of Rate Hikes

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The US stock indices did not trade yesterday because of the Thanksgiving holiday. Today is Black Friday in the United States, a day of huge store discounts. Financial markets will have a short working day.

According to Nordea analysts, the US Federal Reserve will raise interest rates by 50 basis points in December and 25 basis points at the first meeting next year.

Stock markets in Europe mostly rose Thursday. German DAX (DE30) gained 0.78%, French CAC 40 (FR40) added 0.42%, Spanish IBEX 35 (ES35) increased by 0.68%, and British FTSE 100 (UK100) closed yesterday with a 0.02% gain.

According to the IFO report, Germany's business climate index rose to 86.3 last month, compared to 84.5 in October. Economists had expected the index to be 85.0. An indicator of expectations for firms in Germany for the next six months also rose to 80.0 from 75.9, beating estimates of 77.0. Business sentiment in the German economy has improved.

Policymakers at the European Central Bank (ECB) are worried that inflation may be taking hold in the Eurozone, as reports from its October meeting the previous evening showed. Analysts now expect the ECB to raise rates by 50 bps in December and another 25 bps in February. The issue of quantitative easing (QT) remains open. Experts believe the ECB will announce a gradual reduction in reinvestment of its asset purchase program (APP) bonds at the December meeting to stop reinvestment by the end of 2023.

According to a report from the British tax authority, Brexit in 2016 was the main cause of the deteriorating economic performance, which was only worsened by the Covid pandemic, Russia's invasion of Ukraine, and rising global inflation. British companies had to deal with higher trade paperwork costs, a tighter labor market caused by reduced EU migration, and a weaker pound increasing the cost of imports. Brexit also had the political cost of exacerbating tensions in Northern Ireland and worsening diplomatic relations with the EU.

"President Lukashenko of Belarus and those associated with him are equally responsible for war crimes in Ukraine and should be prosecuted before an international tribunal and the International Criminal Court," the European Parliament resolution said. In addition, today, the European Parliament approved the non-recognition of documents issued by the Russian Federation in the occupied territories of Ukraine.

The increase in crude oil reserves in the US and strengthening control over COVID-19 in China put downward pressure on oil prices. European Union governments remain divided over what level to set a ceiling on the price of Russian oil to limit Moscow's ability to pay for the war in Ukraine without causing a global oil supply shock. More talks are possible on Friday. The Kremlin said Thursday that Russia has no plans to supply oil and gas to countries that will support the restrictions.

Asian markets mostly rose yesterday. Japan's Nikkei 225 (JP225) gained 0.95% on Thursday, Hong Kong's Hang Seng (HK50) jumped by 0.78%, and Australia's S&P/ASX 200 (AU200) added 0.14% on the day.

In China, markets were closely watching the impending reduction in the banks' reserve requirement ratio (RRR). China will use timely reductions of banks' RRR, along with other monetary policy instruments, to maintain sufficient liquidity levels. According to experts, the PBoC (People's Bank of China) may reduce RRR by 25 basis points for most banks in the next couple of weeks.

Inflation in Tokyo has beaten forecasts and reached 3.6%, the highest level since 1982. The continued acceleration in core inflation questions Bank of Japan Governor Haruhiko Kuroda's view that current cost-push inflation is temporary and that permanent stimulus is needed to ensure price growth is sustainable. This means that the Bank of Japan is likely to stick to its minimum interest rates for the rest of Kuroda's term.

  • S&P 500 (F) (US500) 4,027.26 0 (0%)
  • Dow Jones (US30) 34,194.06 0 (0%)
  • DAX (DE40) 14,539.56 +111.97 (+0.78%)
  • FTSE 100 (UK100) 7,466.60 +1.36 (+0.018%)
  • USD Index 105.84 -0.23 (-0.22%)

Important events for today:

  • Japan Tokyo Core CPI (m/m) at 01:30 (GMT+3);
  • German GDP (q/q) at 09:00 (GMT+3).

More By This Author:

Analytical Overview Of The Main Currency Pairs - Thursday, Nov. 24
FOMC Minutes Indicate The Fed Will Be Less Aggressive In Raising Rates Further
The RBNZ Raised The Interest Rate By 0.75% And Is Not Going To Stop

Disclosure: This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, ...

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