European stocks fell at the open on Thursday as traders took signals from central bank meetings that interest rates were likely to rise further to curb sticky inflation.
Europe’s region-wide Stoxx 600 fell 1.2 per cent at the open, extending its losses this week while France’s Cac 40 lost 1.5 per cent. The FTSE 100 was down 1.3 per cent in London.
The declines came as the Swiss National Bank raised its main policy rate by 0.25 percentage points to 1.75 per cent and did not rule out additional increases to stabilise prices over the medium term. Norway’s central bank raised its key rate from 3.25 to 3.75 per cent and said it could raise rates again in August.
Later in the day the Bank of England is expected to increase rates by a quarter point to 4.75 per cent after core inflation in Britain hit its highest level since 1992 on Wednesday. However traders also put the odds of a larger 0.5 percentage point rise as high as 50 per cent and predicted a peak of 6 per cent early next year.
“A 50 bps move would surprise consensus expectations leading to a potentially volatile repricing, as the market adjusts probabilities to incorporate a faster hiking pace”, said Michael Siviter, senior portfolio manager at Invesco Fixed Income.
Yields on two-year gilts, which are sensitive to interest rate changes, rose 0.01 percentage points to 5.05 per cent, while the yield on the benchmark 10-year gained 0.02 percentage point to 4.42 per cent. Bond yields rise as prices fall.
Investors will also be watching the release of a survey on EU consumer confidence in June, with the flash indicator expected to have increased slightly from minus 17.4 in May, in a sign of improving economic sentiment among the region’s households.
Meanwhile, contracts tracking Wall Street’s benchmark S&P 500 and those tracking the tech-heavy Nasdaq 100 both lost 0.2 per cent ahead of the New York open.
Both indices closed lower in the previous session, led by a decline in tech stocks, after the US Federal Reserve chair Jay Powell warned that interest rates would need to rise further to bring inflation back to its 2 per cent target.
Elsewhere, investors prepared for Turkey’s central bank meeting, in which the newly appointed governor Hafize Gaye Erkan is expected to increase interest rates, in a sharp turnround from the low-rate policies pursued by President Recep Tayyip Erdoğan. Economists at ING forecast the one-week policy rate would rise from 8.50 per cent to 20 per cent.
Trading was muted in Asia as stock exchanges in China and Hong Kong are closed on Thursday and Friday for the Dragon Boat Festival.