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LGT Navigator: ECB called upon – significant interest rate hike expected

September 8, 2022

At the eagerly awaited monetary policy meeting, the ECB is expected to send out a clear signal in the fight against increasing inflationary pressure in the eurozone with a substantial interest rate hike. Following the interest rate decision, the statements by ECB President Lagarde will also be followed with great interest. The US central bank emphasized in its Beige Book that difficult times lie ahead for the US economy.

ECB called upon – significant interest rate hike expected

The European Central Bank (ECB) will try to send a strong signal in the fight against high inflation today at 2:15 p.m. (CET) with a second interest rate hike of presumably 75 basis points. In doing so, ECB chief Christine Lagarde is walking a delicate tightrope, as sharp and rapidly rising interest rates could put countries such as Italy in financing difficulties. That is why every word Lagarde says at the press conference at 2:45 p.m. is likely to be weighed in the balance. In addition to the anticipated interest rate move, the rationale and the outlook for the further monetary policy path, the ECB will also present updated economic and inflation forecasts. The ECB's announcement could cause some strong reactions on the capital markets, especially in the case of the already battered euro or the bond yields of the euro periphery countries

Europe's stock markets are dominated by fears of an energy crisis and a recession because of a more restrictive monetary policy. Ahead of the ECB's interest rate decision, the EuroStoxx 50 closed virtually unchanged at 3'502.09 points (+0.06%) on Wednesday. The euro climbed back above parity against the US dollar. According to traders, the common currency was supported by lower natural gas and oil prices.

In New York, the mood brightened somewhat in midweek, driven by demand for technology stocks. Thus, the indices on the Nasdaq rose by about +2%. The Dow Jones Industrial rose +1.4% to 31'581.28 points and the broad S&P 500 went out of trading at 3'979.87 points (+1.83%). Apple's product event, where the new iPhone 14 and a more robust Apple Watch Ultra were unveiled, attracted attention. However, the reaction on the trading floor was limited.

Euro economy performed better than expected in the second quarter

Economic growth in the eurozone was stronger than previously expected in the first half of the year. In the second quarter, the gross domestic product of the 19-euro countries expanded by +0.8% compared with the previous quarter. In the previous estimate, a growth rate of +0.6% had been calculated. In the first quarter, the euro economy also performed better than initially expected. According to Eurostat, GDP grew by +0.7% in the first three months (previous estimate +0.5%).

Fed Beige Book: US economy heading for hard times

In its economic report published yesterday evening, the Beige Book, the Federal Reserve emphasized that the American economy is heading for difficult times due to high prices and a lack of labor in many areas. However, there is at least some hope that the upward trend in prices is slowing down. The Beige Book is based on a Fed survey of businesses across the country. Recent statements by high-ranking Fed officials suggest that the pace of interest rate policy will remain unchanged. For example, Fed Vice Chairman Lael Brainard emphasized that the central bank must raise interest rates to a restrictive level and leave them there for some time. The yield on ten-year US government bonds eased slightly to 3.28%. 

Further decline in US trade deficit

The US foreign trade deficit narrowed to USD 70.65 billion in July from USD 80.88 billion the previous month. This marks the fourth consecutive decline, bringing the deficit to its lowest level this year. American exports increased by +0.2%, but imports fell sharply by -2.9%.

Economic Indicators September 8

MEZ Country Indicator Last period
07:45 SZ Unemployment Rate (August) 2.2%
14:15 EZ ECB Monetary Policy Announcement +0.5%
14:30 US Initial Jobless Claims (weekly) 232,000
14:45 EZ ECB Press Conference
15:10 US Fed Governor Powell speaks
16:15 EZ ECB President Lagarde speaks


Earnings Calender September 8

Country Company Period
US Moderna Research Event


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