Tumultuous week for central banks

LONDON — European markets were higher on Friday, looking for a rebound after a volatile week as global stocks reacted to policy tightening from major central banks.

The pan-European Stoxx 600 gained 1.3% by mid-afternoon, with banks gaining 2.7% to lead gains as all sectors and major bourses traded in positive territory.

In terms of individual share price movement, ABN Amro surged more than 12% after Bloomberg reported that France’s BNP Paribas is interested in acquiring the Dutch bank.

Finland’s Nokian Tires jumped more than 9% after raising its net sales guidance for 2022.

The European blue chip index closed Thursday’s session down 2.5% amid a global stock sell-off, as aggressive interest rate hikes enacted by central banks to rein in surging inflation fueled fears of a recession. Shares across the continent are down more than 4% on the week.

“The more aggressive line by central banks adds to headwinds for both economic growth and equities. The risks of a recession are rising, while achieving a soft landing for the US economy appears increasingly challenging.”

Mark Haefele

CIO, UBS Global Wealth Management

The US Federal Reserve on Wednesday raised its benchmark funds rate by 75 basis points, its largest hike since 1994, before the Swiss National Bank surprised markets with its first hike since 2007 and the Bank of England implemented its fifth rate rise in a row.

The European Central Bank announced following an emergency meeting on Wednesday that it plans to create a new tool to tackle the risk of euro zone fragmentation, a move aimed at assuaging fears of a fresh debt crisis for the common currency bloc.

ECB policymaker Klaas Knot reportedly told Dutch radio broadcaster BNR on Friday that several 50 basis point interest rate hikes could be on the table if inflation worsens in the euro zone.

Data on Friday confirmed euro zone inflation at a record high of 8.1% year-on-year in May.

“The more aggressive line by central banks adds to headwinds for both economic growth and equities. The risks of a recession are rising, while achieving a soft landing for the US economy appears increasingly challenging,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

Stateside, the S&P 500 is poised for its worst week since March 2020 after several key pieces of economic data fell short of forecasts this week, ranging from May retail sales to housing starts, compounding the Fed-induced recession fears.

Stock futures rose in early premarket trade on Friday as Wall Street looks to arrest the slide.

Shares in Asia-Pacific were mixed overnight, with Japan leading losses among the region’s major markets. The Bank of Japan on Friday decided to maintain its ultra-loose monetary policy stance, diverging substantially from its global peers.

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