FTSE and European stocks rally as ECB calls meeting to discuss market rout

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FTSE and European stocks rallied as the ECB is set to meet to discuss the latest market rout in government bonds. Photo: Jeremy Moeller/Getty

European stocks jumped on Wednesday as markets bet on a larger-than-expected interest rates raise from the Federal Reserve to tame red-hot inflation as fears of a recession mount.

The FTSE 100 (^FTSE) shot up 0.7%, France’s CAC (^FCHI) was 1.4% higher after the opening bell and the DAX (^GDAXI) rose 1% in Frankfurt.

It comes as the European Central Bank (ECB) called an unexpected meeting to discuss the recent government bonds sell-off that has been wreaking havoc on markets.

The move on Wednesday morning raises the prospect the central bank could announce a new tool to tackle surging borrowing costs in weaker eurozone economies.

“The governing council will have an ad-hoc meeting on Wednesday to discuss current market conditions,” a spokesperson for the ECB said.

Bond yields have seen a sharp rise since the Bank announced a series of rate rises last week and the gap between the yields of German bonds and those of more indebted countries, such as Italy, soared to the highest in over two years.

The ECB’s announcement comes a day before of the Bank of England’s interest rates decision.

Threadneedle Street is expected to lift UK’s interest rates to 1.25% when the Monetary Policy Committee (MPC) meets on Thursday.

Read more: Bank of England set to raise UK interest rates to 1.25%

Across the Atlantic, US benchmarks finished mixed, a day after the main index slid into a bear market on fears that a fresh 40-year high inflation will lead to an aggressive Fed rate hike.

The Federal Open Market Committee (FOMC) is set to announce its interest rates decision later today. Investors expect a 0.75 basis points rate hike, which would be the largest lift since 1994.

Before figures on Friday showed consumer prices jumped another 1% in May from the previous month, the central bank had signalled it was poised to approve a half-point rate hike.

Wall Street’s S&P 500 (^GSPC) lost 14.15 points, or 0.4%, to 3735.48. The tech-heavy Nasdaq (^IXIC) finished 0.2% higher, while the Dow Jones (^DJI) declined 0.5%.

Michael Hewson, chief market analyst at CMC Markets, said: “Up until a week ago it was pretty much a slam dunk that the Fed would be raising rates today by another 50bps to 1.5%, to be followed by another 50bps in July.

“This calculus has shifted quite sharply since last Friday’s May CPI report to the markets pricing 75bps because of a single CPI print of 8.6%, over concerns that the Federal Reserve is falling behind the curve when it comes to addressing sticky inflation expectations.

“A responsible Fed would look to wrestle back the narrative and do what it said it would do, which means we need to see 50bps today, with a hawkish pivot at the very least, especially if it wants to be taken seriously when it comes to future guidance.

It’s also not apparent what a pivot to 75bps would achieve when the Fed could simply deliver a 50bps hike, today and then throw the prospect of 75bps into the hat for July, as well as September.

Read more: Bitcoin slump deepens crypto meltdown

Asian stocks were mixed overnight after Chinese economic data came in slightly better than expected for a month hampered by pandemic controls.

Industrial production rose slightly by 0.7% in May compared to a year ago, analysts polled by Reuters had expected a 0.7% drop. In April, industrial production unexpectedly fell, down by 2.9% year-on-year.

Retail sales fell less than anticipated, down by 6.7% in May from a year ago. They fell 11.1% in April compared from the 12 months prior.

In Tokyo, the Nikkei (^N225) dipped 1.1%, while the Hang Seng (^HSI) gained 1.1% in Hong Kong and the Shanghai Composite (000001.SS) added 0.5%.

Watch: Fed could be considering 75 basis point rate hike