European Central Bank raises rates by 75 basis points to tackle soaring inflation
https://www.cnbc.com/2022/09/08/european-central-bank-raises-rates-by-75-basis-points-.html
PUBLISHED TUE, SEP 6 202211:21 PM EDTUPDATED WED, SEP 7 20222:58 PM EDT
Oil prices fell by more than $4 on Wednesday to their lowest since Russia invaded Ukraine on demand fears stoked by looming recession risks and downbeat Chinese trade data.
Brent crude futures settled at $88 a barrel, for a loss of $4.83 or 5.2%.
U.S. West Texas Intermediate crude settled $4.94, or 5.69%, lower at $81.94 per barrel. “The spectre of a demand-sapping recession across the Western world is closer to becoming reality as soaring inflation and rising interest rates dent consumption,” said PVM analyst Stephen Brennock.
Credit rating agency Fitch on Tuesday said that the halting of the Nord Stream 1 pipeline has increased the likelihood of a recession in the euro zone.
The European Central Bank is widely expected to raise interest rates sharply when it meets on Thursday. A U.S. Federal Reserve meeting follows on Sept. 21.
Weak economic data from China amid its stringent zero-COVID policy has also added to demand concerns.
The country’s crude oil imports in August fell 9.4% from a year earlier, customs data showed on Wednesday.
Meanwhile, Britain’s new prime minister, Liz Truss, on Wednesday said she wanted to see more extraction of oil and gas from the North Sea.
Prices had been supported earlier by a threat from Russian President Vladimir Putin to halt all oil and gas supplies if price caps are imposed on Russia’s energy resources.
The European Union proposed to cap Russian gas only hours later, raising the risk of rationing in some of the world’s richest countries this winter.
Analysts already expect oil supply to be tight in the last quarter of the year.
Weekly U.S. inventory reports from the American Petroleum Institute will be released later on Wednesday, a day later than usual because of a public holiday on Monday.
U.S. crude stockpiles are expected to have fallen for a fourth consecutive week, declining by an estimated 733,000 barrels in the week to Sept. 2, a preliminary Reuters poll showed on Tuesday.
Asia-Pacific markets mostly fall sharply; China’s factory activity shrinks
Crude Oil Sees Further Downside Following Yesterday’s Sharp Pullback
Following the sharp pullback seen in the previous session, the price of crude oil saw further downside during trading on Wednesday.
Oil prices regained some ground after an initial sell-off but once again came under pressure in the latter part of the session.
Crude for October delivery tumbled $2.09 or 2.3 percent to $89.55 a barrel after plummeting $5.37 or 5.5 percent to $91.64 a barrel on Tuesday.
Concerns about the outlook for the global economy continued to weigh on oil prices following the release of disappointing Chinese data.
A report showing record high inflation in the Eurozone also led to worries aggressive monetary policy tightening by the European Central Bank could trigger a recession.
Oil prices recovered from their early lows after a report from the Energy Information Administration showed U.S. crude oil inventories fell by more than expected in the week ended August 26th.
The report showed crude oil inventories slid by 3.3 million barrels versus expectations for a decrease of about 1.5 million barrels.
The EIA also said gasoline inventories declined by 1.2 million barrels, while distillate fuel inventories inched up by 0.1 million barrels.
At midday: TSX slips on sell-off in energy stocks, downbeat GDP data
Canada’s resource heavy main stock index fell on Wednesday after a drop in the sector and others including energy and materials added to the dour sentiment from data showing slower-than-expected growth in the domestic economy.
At 10:25 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 71.86 points, or 0.37%, at 19,441.04. The index is headed for its fourth straight decline, and is down 1.2% for the month mainly due to falls in oil prices.
The energy sector dropped 0.6% as crude prices continued to slide on worries about a slowing global economy, bearish oil demand signals from OPEC+ and increased COVID-led restrictions in China.
Canada’s statistics agency data showed economic growth lagged in the second quarter and most likely dipped into negative territory in July, signaling the economy may be cooling more quickly than expected.
The negative print for July suggests third-quarter growth will come in short of the Bank of Canada’s forecast of 2%, said economists. Still it was unlikely to sway the central bank from its current tightening path.
“Central banks are worried more about inflation than they are about the possibility of a recession,” said Michael Sprung, president at Sprung Investment Management.
The healthcare sector jumped 2.5% after Bausch Health soared more than 20%.
Money markets see a roughly 75% chance that Bank of Canada will increase rates by 75 basis points next week.
Meanwhile, gold prices were on track to post their longest streak of monthly losses since 2018 as traders anticipated more interest rate increases by central banks to combat inflation. The TSX materials sector, which includes precious and base metals miners and fertilizer companies, lost 0.4%.
“We could have quite a bit of choppiness in the weeks ahead,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
World stock markets staged a tepid recovery on Wednesday after a three-day losing streak, but stubborn inflation that has central banks on both sides of the Atlantic preparing to raise borrowing costs again next month kept investors on edge.
Wall Street was mixed in early trade as U.S. crude oil prices sank for a second day, as worries that tightening monetary policy around the world will hurt demand and drag on the global economy.
The MSCI all-country stock index was little changed on the day and was down 18% for the year as war in Ukraine, surging energy prices and rising interest rates take their toll on risky assets.
The U.S. S&P 500 index and the Dow Jones Industrial Average were also flat, while the Nasdaq Composite rose 0.49%.
Europe’s STOXX share index of 600 companies dropped 0.6% to a six-week low, leaving it down about 14.5% for the year.
Economic news remained grim with overnight data showing that economic activity in China, the world’s second-largest economy, extended its decline this month after new COVID-19 infections, the worst heatwaves in decades, and struggles in the property sector.
Headline euro zone inflation for August rose to another record high, beating expectations and solidifying the case for a hefty rate hike by the European Central Bank on Sept. 8.
Russia halted gas supplies via a major pipeline to Europe on Wednesday for three days of maintenance amid fears it won’t be switched back on, adding to worries of energy rationing during coming winter months in some of the region’s richest countries.
The energy crunch has already created a painful cost-of-living crisis for consumers and businesses and forced governments to spend billions to ease the burden.
German bonds were set for their worst month in over 30 years as euro zone inflation hit a record high.
Markets are betting that the U.S. Federal Reserve and the ECB will both raise their key borrowing costs by 75 basis points when they meet next month.
Jamie Niven, a senior bond fund manager at Candriam, said rate hikes anticipated for this year had been largely priced into markets, especially in the United States.
Investors have begun pricing out previously anticipated rate cuts next year following Fed Chair Jerome Powell’s hard-hitting speech last week.
“I think there is more pain to come in credit markets and in equity markets before we see a brighter outlook. I don’t think central banks are going to be in a state where they can cut to kind of soften the blow of recession,” Niven said.
While there may be occasional quick flips or dramatic rallies back into riskier assets like stocks at times, they will ultimately be lower towards the end of the year, Niven said.
U.S. non-farm payrolls data due on Friday could make the case for a big rate hike, analysts said.
In Asia overnight, Japan’s Nikkei sagged 0.4% and Chinese blue chips were little changed. Hong Kong’s Hang Seng was down 0.16%, recovering from steep early declines.
The two-year U.S. Treasury yield, which is relatively more sensitive to the monetary policy outlook, hit a 15-year high at 3.497% overnight, but eased back to 3.4357%.
The 10-year Treasury yield, which hit a two-month high of 3.153% on Tuesday, stood at 3.1063%.
The dollar index was flat at 108.74, after starting the week by marking a two-decade high at 109.48.
Sterling is set for its worst month since late 2016 against the dollar as UK inflation is already at 10% and rising, with the Bank of England set to increase rates next month.
Gold fell 0.3% to $1,718.4 an ounce, a one-month low.
Crude oil fell further after declines of more than $5 overnight, but drew support after industry data showed U.S. fuel stocks fell more than expected.
U.S. West Texas Intermediate (WTI) crude futures were down 1.3% at $90.45 a barrel, after sliding $5.37 in the previous session, driven by recession fears. Brent crude futures for October fell 2.7%.
On a brighter note, cryptocurrencies staged a rebound, with bitcoin up 1.8% at $20,182.
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