ECB Rate Hike Looms as European Equities Stabilize Amid Inflation Fears
European equities stabilized on Thursday after a sell-off in the previous session, as investors prepared for a high-stakes interest rate decision from the European Central Bank. The pan-European STOXX 600 index edged up 0.1% after dropping 1.4% to close at its lowest level since late July.
The ECB's Governing Council meeting in Frankfurt marked a dramatic shift in market expectations, with money markets now fully pricing in a 25-basis-point interest rate increase, taking the benchmark deposit rate to 2.50%. Just weeks ago, consensus expectations leaned towards keeping rates unchanged.
A rapid sequence of macroeconomic and geopolitical shocks led to a surge in crude oil prices above $100-a-barrel threshold, reigniting fears of stagflation. Preliminary Eurostat figures showed Eurozone headline CPI accelerating to 3.3% year-on-year, driven chiefly by a 14.3% spike in energy components.
With inflation moving further above the ECB's 2% target, President Christine Lagarde and hawkish policymakers signaled that the central bank could not risk allowing energy-driven price pressures to entrench second-round wage effects.