European stocks fell on Tuesday, as the European Central Bank signalled that interest rates would need to rise further in order to stamp out sticky inflation.
Europe’s region-wide Stoxx 600 index gave up its early-morning gains to trade 0.2 per cent lower, while Germany’s Dax was down 0.1 per cent and London’s FTSE 100 was flat.
Stocks moved lower after ECB president Christine Lagarde said in a speech that her “job is not done”, signalling that policymakers would need to tighten monetary policy further in order to tame persistent inflation in the region.
“Barring a material change to the outlook, we will continue to increase rates in July,” noted Lagarde, adding to investors’ concerns that high borrowing costs could weigh on growth in the single currency bloc.
The ECB is likely to be swayed by inflation figures due on Friday, said economists. Price growth is expected to come in at 5.7 per cent in the year to June, compared with 6.1 per cent a month earlier.
Yet rate setters are likely to remain concerned over the region’s underlying price pressures. Core inflation, which strips out volatile food and energy prices, is expected to have accelerated, necessitating further ECB tightening.
The ECB in June raised its benchmark deposit rate by a quarter point to 3.5 per cent, its highest level in 22 years.
Wall Street futures rose, however, with contracts tracking the benchmark S&P 500 index adding 0.2 per cent and those tracking the tech-heavy Nasdaq 100 gaining 0.4 per cent ahead of the New York open.
Oil prices continued to fluctuate after the weekend’s armed mutiny in Russia raised serious questions about the outlook for Vladimir Putin’s regime and doubts over crude output from one of the world’s top suppliers.
International benchmark Brent crude traded 1 per cent lower at $73.48 a barrel while the US marker, West Texas Intermediate, was also down 1 per cent at $68.71.
In China, equity markets were up, with Hong Kong’s Hang Seng index rising 1.9 per cent and China’s CSI 300 gaining 0.9 per cent.
Investors welcomed the assurance that China’s officials intended to support growth in the world’s second-largest economy, which has struggled to pick up steam this year since reopening after the pandemic.
China’s premier Li Qiang gave a speech at the World Economic Forum’s Annual Meeting of the New Champions, known as the “Summer Davos”, relaying Beijing’s intentions to enact more effective policies to bolster domestic demand.
Policymakers this month cut benchmark interest rates in an attempt to stimulate growth, but economists anticipate a range of further support measures over coming months.