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Global markets drop before ECB decision, after hawkish Fed

Jun 14 2018 13:42

World stocks fell on Thursday before the latest eurozone interest rate call, and after the US Federal Reserve hiked borrowing costs and signalled several more rises through to the end of next year.

Sentiment soured also as US President Donald Trump stoked trade war fears by suggesting he will hit China with fresh tariffs.

Frankfurt, London and Paris equities sank ahead of a hotly-anticipated interest rate call from the European Central Bank, which will announce the latest decision at 12:45.

The ECB, holding its latest gathering in the Latvian capital of Riga, could choose to announce or at least hint that the end is in sight for its massive support for the eurozone economy, a policy more widely known as quantitative easing (QE).

"Stocks are lower today in light of the Federal Reserve interest-rate hike and hawkish message last night, and investors are cautious of the ECB meeting today," said CMC Markets UK analyst David Madden.

Groundwork

"Dealers are anticipating the ECB to lay the groundwork for winding down the stimulus package," Madden added.

The ECB's monthly bond purchases of €30bn and ultra-low interest rates are designed to stoke growth in the 19-nation single currency area and power inflation to their target of just below 2.0%.

Economic growth has picked up across the eurozone, although at a slower pace in early 2018 than last year - 0.4% between January and March compared with 0.7% in the previous three months.

"At the conclusion of today's meeting, the ECB may explain how and when QE will end," noted Forex.com analyst Fawad Razaqzada.

"There is also a possibility that it could wait until the July meeting too spell out the exit plan. In any case, the markets are desperate for some clear guidance."

On Wednesday, the Fed lifted borrowing costs as expected, but also indicated another two hikes this year and four in 2019 as the world's top economy continues to improve and inflation picks up.

While the Fed had earlier been tipped to announce three increases each year, there had been growing speculation that it would have to be more aggressive to keep a lid on prices and prevent the economy from boiling over.

Policymakers have been forced to change tack to take account of Trump's huge tax cuts in December, which have already started to take effect.

All three main indexes on Wall Street ended down on the prospect of higher borrowing costs, which would affect investment, while the dollar was slightly weaker as traders had largely priced in further hikes.

And Asian markets struggled, with signs of a slowdown in Chinese growth also denting sentiment after data showed factor output, retail sales and investment all missing forecasts.

Trade war fears also returned after Trump warned Beijing of possible fresh tariffs.

"China could be a little bit upset about trade because we are very strongly clamping down on trade," Trump said in an interview aired on Fox News on Wednesday.

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equities  |  markets  |  global markets
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