Eurozone stocks choppy as ECB begins big rate hike

  • Eurozone banks reverse earlier gains
  • Italian banks cut losses to 4.6%
  • Russian gas flow resumes via Nord Stream 1

July 21 (Reuters) – Eurozone stocks slipped in volatile trading on Thursday as investors weighed the impact of an aggressive 50 basis point interest rate hike by the European Central Bank amid a backdrop growing concerns about a recession and political unrest in Italy.

Rate-sensitive European banks (.SX7E) fell 1.1% after gaining as much as 1.8% earlier in the session.

In its first rate hike in 11 years, the ECB raised interest rates to zero percent, beating its own forecast of a 25 basis point hike as inflation hit a record high of 8.6 %, well above its target of 2%. Read more

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“We have less visibility on what the next ECB move might be and the market will be driven by inflation data, any indication that the Eurozone economy is picking up or slowing down, it is more likely to slow down. “said Julien Lafargue, chief market strategist at Barclays Private Bank.

“That means we’re now going to go from meeting to meeting without necessarily having a good indication of what the ECB will do next. And that’s probably going to bring more volatility.”

An indicator of eurozone stocks (.STOXXE) fell 0.4%. The broader pan-European STOXX 600 index (.STOXX) fell 0.4%. Both indices had risen following the ECB’s decision.

In order to cushion the impact of rising borrowing costs, the ECB also unveiled a new tool, the Transmission Protection Instrument, and limit financial fragmentation.

This led Italian banks (.FTITLMS3010) to pare some of their session losses to trade down 4.6%. They had fallen as much as 7.2% earlier in the day after Prime Minister Mario Draghi resigned, plunging the country into political turmoil. Read more

A snap election in September or October will be the most likely outcome. Italy’s benchmark FTSE MIB (.FTMIB), which fell nearly 3% earlier in the day, was last down 1.9%.

Some relief on Thursday came as worries about an energy supply crisis eased, as Russian gas began to flow again in Nord Stream 1, the largest pipeline between Russia and Germany. Read more

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Reporting by Susan Mathew and Devik Jain in Bengaluru; Editing by Subhranshu Sahu and Arun Koyyur

Our standards: The Thomson Reuters Trust Principles.

Garland K. Long