European shares experienced a slight downturn following the European Central Bank’s (ECB) decision to raise borrowing costs. This move was anticipated as part of the ECB’s ongoing efforts to combat persistent inflation. The continent-wide index saw a minor decrease of 0.1% after an earlier dip of 0.8%.
The ECB increased the deposit rate by 25 basis points to 3.5%, marking a 22-year high. This adjustment represents the eighth consecutive increase by the central bank. Inflation in the euro zone currently stands at 6.1%, significantly exceeding the ECB’s 2% target.
Stuart Cole, head macro economist at Equiti Capital, commented on the rate hike, stating, “It was fully expected, given that (ECB chief Christine) Lagarde had already said a couple of weeks ago that interest rates needed to be raised further to bring CPI back to target.” He further noted that the inflation outlook was revised upwards, indicating the likelihood of additional rate increases before the ECB decides to pause.
This development comes on the heels of the U.S. Federal Reserve’s decision to maintain its current interest rates, but with signals of increases totaling at least half a percentage point by the end of this year.
Rate-sensitive banks saw a decrease of 0.8%, while the technology sector index fell by 0.6%. Investors and market analysts are keeping a close eye on further economic data and updates from major central banks, hoping for insights that could help the STOXX 600 break out of the 1% trading range it has been stuck in for nearly two weeks.
In contrast, healthcare stocks saw a 0.4% increase, with defensive shares limiting losses on the broader index. H&M experienced a 3.7% rise after the Swedish clothes group reported a strong start to June. British online fashion retailer ASOS rallied 14.8% after announcing that its new strategy was starting to show positive results, leading to a return to profitability. Overall, the retail index climbed 0.3%.
British technology company Halma saw a 3.4% decrease due to a disappointing annual margins outlook. In contrast, SoftwareOne shares surged 18.7% after Bain Capital Private Equity made an offer for the Swiss software management company, valuing it at 2.9 billion Swiss francs ($3.21 billion). Informa Plc advanced 3.4% after raising its annual profit and revenue forecast.