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AFP

Business

Stocks extend losses as ECB eyes multiple rate hikes

ECB European Central Bank Inflation London Euro

The European Central Bank has outlined a series of rate hikes in the coming months to rein in runaway inflation in the eurozone . ©AFP

New York (AFP) - Global stocks moved deeper into the red on Thursday after the European Central Bank unveiled steps to rein in surging inflation while Wall Street traders were in selling mode ahead of a key reading on consumer prices.

The ECB said after its policy meeting that it would raise interest rates for the first time in over a decade in July, bringing the curtain down on the era of cheap money in the single currency area.

While the announcement had been widely anticipated, stock prices in Frankfurt, London and Paris -- which had been weaker all morning -- closed in the red and yields on eurozone countries' sovereign bonds moved higher.

On the other side of the Atlantic, Wall Street stocks suffered even deeper losses, with the broad-based S&P 500 sinking 2.4 percent ahead of Friday's consumer price data.

After refusing to act as other central banks around the world started tightening monetary policy, ECB chief Christine Lagarde cautioned that the first quarter-point rate hike in July was not expected to have an immediate effect on inflation.

As a first step, the ECB said it would end its massive bond-buying stimulus as of July 1.

The central bank also sharply upgraded its inflation forecasts for this year and 2023 while lowering the economic growth outlook.

But the euro softened against the dollar and pound, reflecting the fact the central bank opted against an even bigger a 50 basis point increase to match the latest move by the US Federal Reserve, which has signaled another big hike is coming next week and likely in July as well.

Analysts also pointed to worries of "fragmentation" in borrowing costs across the eurozone.

Quizzed on how the bank would respond if borrowing costs started to diverge across the eurozone, Lagarde said the ECB "will not tolerate fragmentation".

She declined to spell out what action the bank might take, saying only that "we know how to deploy new instruments if and when necessary".

The spread between Italian and benchmark German 10-year bonds is currently at its widest since the early stages of the pandemic.

'Gloomy summer'

Traders were also awaiting US inflation data due Friday.

Analysts expect the Fed to stick to its hawkish path and hike US interest rates by half a point for at least three more meetings this year as it tries to tame American consumer prices.

"Until we reach peak inflation, which will trigger a less hawkish Fed and lower recession odds, it could be a gloomy summer for global stock pickers," forecast SPI Asset Management's Stephen Innes.

There was fresh uncertainty over the economic outlook in China as Covid fears linger over the world's second-biggest economy.

While data showed China's exports rebounded strongly in May, with factories restarting and supply chains untangling as Shanghai slowly emerged from a grueling lockdown, the metropolis on Saturday will shut a district of 2.7 million people for mass coronavirus testing.