Plus   Neg

European Markets Mostly Higher After ECB, BoE Rate Decisions

European stocks are mostly higher on Thursday, amid optimism that trade tensions between the U.S. and China, the world's two largest economies, will ease. The markets also appear to be reacting positively to the interest rate decisions of the Bank of England and the European Central Bank.

According to reports, the U.S. is in the early stages of proposing a new round of trade talks with China in the near future. The U.S. Treasury Secretary Steven Mnuchin has reportedly sent an invitation for talks to senior Chinese
officials, proposing a meeting in the next few weeks.

Meanwhile, the Bank of England and the European Central Bank have left their main interest rates unchanged today.

BoE's nine-member Monetary Policy Committee, led by Governor Mark Carney, unanimously decided to hold its main interest rate unchanged at 0.75 percent and to maintain the quantitative easing through asset purchases at GBP 435 billion. The MPC reiterated that any future increases in Bank Rate were likely to be at a gradual pace and to a limited extent.

The European Central Bank has kept its interest rates unchanged. The bank has maintained the forward guidance on monetary stimulus for a second policy session in a row. The main refi rate is currently at a record low zero percent
and the deposit rate at -0.40 percent. The marginal lending facility rate is 0.25 percent.

"The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of
inflation to levels that are below, but close to, 2 percent over the medium term," the ECB said in a statement.

The ECB has trimmed its economic growth outlook for this year and next. Speaking at a post-policy press conference, ECB President Mario Draghi said global risk factors have become more of a threat in recent months.

"Uncertainties relating to rising protectionism, vulnerabilities in emerging markets, and financial market volatility have gained more prominence recently," Draghi said.

Among the markets in Europe, Germany and France are trading higher, with their benchmark indices gaining 0.6 percent and 0.55 percent, respectively. The U.K.'s FTSE 100 is down marginally.

Austria, Belgium, Czech Republic, Russia, Spain, Sweden, Finland and Switzerland are notably higher. Turkey is up sharply with its benchmark gaining about 2.2 percent and Poland is up nearly 2 percent.

Turkey's central bank raised its key interest rate by a bigger-than-expected volume on Thursday, defying calls from the country's President Tayyip Erdogan for lower rates. The Monetary Policy Committee, led by Governor Murat
Cetinkaya, raised the one-week repo auction rate to 24 percent from 17.75 percent. Economists had expected the rate to be raised to 20.75-22 percent.

Earlier on Thursday, Erdogan said high interest rates are a "tool of exploitation" and the central bank should cut them. The lira fell over 3 percent on his comments.

The Turksih lira rallied on the news of the rate hike and was trading more than 5 percent above its Wednesday's closing level.

"The fact that the CBRT has taken fairly aggressive action will ease some of the concerns about the erosion of its independence," Capital Economics economist Jason Tuvey said.

For comments and feedback contact: editorial@rttnews.com

Market Analysis

Follow RTT