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Markets put money on ECB rate hike amid rising European bond yields

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8 months ago

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Traders boosted bets for a European Central Bank (ECB) rate hike this week, sending Italy’s 10-year bond yield to a six-month high after a Reuters report that the central bank believes inflation will continue to hover around 3% next year.

The day’s main macroeconomic event for global markets is US inflation data released at 1230 GMT which will help shape the Federal Reserve’s rate decision later this month.

But there is plenty happening in Europe too, and traders are also bracing for the ECB’s meeting on Thursday – current market pricing reflects roughly a 75% chance the central bank will raise rates by 25 basis points, up from around a 40% chance on Monday and just 25% a week ago.

A further rate hike this year is now fully priced in.

The rise in rate expectations on Wednesday was, said Jan von Gerich chief analyst at Nordea, a result of a Reuters report late on Tuesday which said, citing a source with direct knowledge of the matter, the ECB’s quarterly projections will put inflation north of 3% in 2024.

That would support the case for a further rate increase, though the source said the rate decision was still a close call.

A pick up in market expectations also makes a rate hike more likely.

“The ECB isn’t as sensitive to market expectations as say the Fed is, but it is not totally insensitive so this kind of pricing on the margin increases the odds of hiking,” von Gerich said.

“It isn’t conclusive, but they do look at market expectations and worry that if they disappoint too much then you could see rates fall, and financing conditions ease, which they don’t want to at the moment.”

The yield on Italy’s 10-year bond hit 4.452% in early trading, its highest since mid-March, and was last at 4.44%, up 3 basis points (bps) on the day.

Germany’s 10-year yield rose 2.5 bps at 2.67%, meaning that the spread between the German and Italian 10-year yields touched 178 bps, its widest since June.

Bond yields move inversely to prices and higher rates from the ECB would typically weigh more heavily on the more-indebted European periphery.

Some market participants expect an acceleration of the ECB’s quantitative tightening measures – in which the central bank reduces its bond portfolio – to hurt peripheral bond prices.

Shorter-dated yields, more sensitive to interest rate expectations, also rose. Germany’s two-year yield was up 3 bps at 3.16%, having briefly touched a one-month high, and Italy’s two-year yield touched a two-month high and was last 7 bps higher at 3.9%. 

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Pakistan’s gold prices are still declining; see the most recent

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6 days ago

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The price of 10-gram gold reduced by Rs943 to settle at Rs207,733, while the price of gold dropped by Rs1200 to close at Rs242,300 a tola, according to the Sindh Sarafa Jewellers Association.

In the global market, the price of the precious metal fell by $10 to $2,349 per ounce, resulting in losses.

At 04:48 GMT, the spot price of gold had dropped by 0.2% to $2,354.77 per ounce. In the previous session, prices reached a two-week high.

American gold futures dropped 0.6% to $2,361.

Spot silver decreased by 0.4% to $28.03 per ounce, while palladium remained steady at $978.03 and platinum decreased by 0.1% to $992.89.

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Pakistan and the IMF begin talks for a new loan.

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6 days ago

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Pakistan is requesting a $6 to $8 billion bailout package from the international lender over the next three to four years to address its financial troubles.

A mission team led by Nathan Porter, the IMF’s Mission Chief in Pakistan, is meeting with a Pakistani delegation led by Finance Minister Muhammad Aurangzeb.

According to sources familiar with the situation, Islamabad may face more difficult options, such as raising power and gas bills.

Mr. Aurganzeb informed the IMF team that the country’s economy has improved as a result of the IMF loan package, and Islamabad is ready to sign a new loan programme to further develop.

The IMF mission expressed satisfaction with Islamabad’s efforts to revive the country’s struggling economy.

The IMF praised Pakistan’s economic growth in its staff report earlier this week, but warned that the outlook remains challenging, with very high downside risks.

The country nearly avoided collapse last summer, and its $350 billion economy has stabilized since the end of the last IMF program, with inflation falling to roughly 17% in April from a record high of 38% last May.

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Petrol prices are likely to drop significantly beginning May 16.

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6 days ago

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According to sources, the government is set to decrease petrol prices by Rs 14 per litre and diesel prices by Rs 10 on May 16 for the next fortnight’s revision.

Last month, the government reduced the price of fuel and high-speed diesel by Rs5.45 and Rs8.42 per fortnight, respectively.

The current fuel price is Rs288.49 per litre, while the HSD price is Rs281.96.

Meanwhile, oil prices fell further on Monday, as signs of sluggish fuel consumption and comments from U.S. Federal Reserve officials dimmed optimism for interest rate reduction, which may slow growth and reduce fuel demand in the world’s largest economy.

Brent crude prices down 25 cents, or 0.3%, to $82.54 a barrel, while US West Texas Intermediate crude futures fell 19 cents, or 0.2%, to $78.07 per barrel.

Oil prices also declined on signals of poor demand, according to ANZ analysts, as gasoline and distillate inventories in the United States increased in the week before the start of the driving season.

Refiners throughout the world are dealing with falling diesel profitability as new refineries increase supply and warm weather in the northern hemisphere and weak economic activity reduce demand.

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