Stocks slide after Fed, ECB deliver rate hikes

The ECB joined the Fed in dropping a commitment to raise interest rates further. ©AFP

London (AFP) - European and US stocks slid Thursday after the ECB and the Fed again hiked interest rates to fight elevated inflation, while hinting the next move could be a pause.

The European Central Bank joined on Thursday the US Federal Reserve by increasing its main interest rate by a quarter percentage point, slowing the pace of its hike.

Like the Fed, which announced its decision on Wednesday, the ECB also dropped language from its statement a commitment to raise interest rates further at its next meeting.

The euro fell against the dollar following the announcement.

ECB chief Christine Lagarde indicated however that the central bank has "more ground to cover" in fighting sky-high inflation, and said the change in guidance was not a signal of a pause in rate hikes.

"Based on the information today, we have more ground to cover and we're not pausing," she told a press conference.

Ahead of the ECB decision, Norway's central bank lifted its key interest rate -- and warned that it would probably increase the rate again in June.

European stocks were lower in afternoon trading, while Wall Street fell at the opening bell after ending Wednesday's session in the red.

Briefing.com analyst Patrick O'Hare said the equity markets were disappointed as they wanted to see a pivot to rate cuts, not just a pause in rate hikes.

The market "wants such a pivot because it is worried that the Fed, and other central banks, are going to overtighten (or have overtightened already) and invite a dire economic outcome, particularly now that the banking crisis in the US is expected to lead to much tighter financial conditions through the restriction of credit," he said.

Fresh banking fears

Fears of widespread banking turmoil were revived as shares in regional US lender PacWest plummeted by more than half in overnight trading.They fell 42 percent when Wall Street opened for business.

The selloff was apparently spurred by reports the bank was considering the possibility of a sale or other capital-raising measures in the wake of the recent collapses of other mid-size lenders.

PacWest sought to reassure investors in a statement, insisting it had not "experienced out-of-the-ordinary deposit flows" since the banking fears first arose, and that its "cash and available liquidity remains solid".

The bank said it was routine to "continuously review strategic options", adding it had been "approached by several potential partners and investors".

Oil prices continued to slide on expectations of weaker demand owing to an economic slowdown.

Also on investors' minds were fears that Democrats and Republicans might fail to strike a deal on raising the US debt ceiling, triggering a damaging default as early as June 1.