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AFP

Business

European stocks climb after rate decisions

ING European Central Bank Bank of England Inflation US Federal Reserve Gautam Adani Interest Rates United States London Adani Enterprises

The European Central Bank announced it would hike interest rates by half a percentage point in an effort to cool inflation. ©AFP

London (AFP) - European stock markets rose on Thursday after the European Central Bank and Bank of England raised interest rates, joining the US Federal Reserve in moving once again to cool sky-high inflation.

Markets climbed in London, Frankfurt and Paris after the European Central Bank announced it would hike interest rates by half a percentage point.

The central bank said another such increase would come in March, saying it would "stay the course in raising interest rates significantly at a steady pace".

Matthew Weller, global head of Research at FOREX.com and City Index, called it a "decisive step to combat inflation and promote stability in the eurozone."

"This move was widely anticipated by market analysts and reflects the improving economic conditions in the region," he said.

Signs are growing the eurozone may have passed the worst of an economic shock, with inflation slowing from a peak in October and the single currency area eking out growth at the end of 2022.

Earlier on Thursday the Bank of England also hiked its interest rate by half a percentage point, marking the tenth increase in the key rate.

The central bank forecast a shallower-than-expected UK recession this year as the country faces a cost-of-living crisis.

But the BoE governor Andrew Bailey told a press conference that inflationary pressure was still there and it was "too soon to declare victory yet".

Analysts at ING said that "ultimately, a recession is still likely –- albeit milder than first anticipated."

"We think there are limits to how much higher (the) Bank Rate can go without prompting more serious dislocations in the housing market and among corporate borrowers," they wrote in a market note.

Fed hopes

In Asia the main equity indices closed mixed ahead of the European rate decisions, with investors unable to maintain an early rally -- despite a strong lead Wednesday from Wall Street fuelled by hopes the Fed's campaign of interest rate hikes could be nearing an end.

Equities were also boosted by well-received earnings, including record profits from British energy giant Shell, which posted an annual net profit of $42.3 billion thanks to surging oil and gas prices, and sales dropping less than expected at Meta, owner of Facebook and Instagram.

Tech firms led a surge on the Nasdaq and S&P 500 indices Wednesday after the US central bank unveiled an expected quarter-point increase in borrowing costs -- but also noted progress in bringing prices under control.

While Fed chair Jerome Powell warned officials would need "substantially more evidence" to be confident that inflation is on a sustained downward path, analysts said he appeared unmoved by market expectations for a lower "terminal rate".

The decision to lift rates by the smallest amount in almost a year came after a series of data points suggested the world's top economy was slowing down, with US inflation at its lowest level since October 2021.

Thursday also saw another hefty sell-off in Indian tycoon Gautam Adani's empire, with trading in flagship firm Adani Enterprises and five others suspended after they lost 10 percent.

Adani Enterprises had plunged nearly 30 percent Wednesday.

The losses came after the group cancelled a multi-billion-dollar stock sale in reaction to the across-the-board collapse.

Adani's empire has lost more than $100 billion following explosive allegations of accounting fraud last week by US short-seller Hindenburg Research that the firm has rejected.