European stocks opened mixed on Thursday ahead of the European Central Bank’s rate decision, as inflation in the bloc beats targets and the economic outlook darkens as the war in Ukraine drags on .
The FTSE 100 (^FTSE) fell 0.4% as investors watch soaring inflation and war in Ukraine ahead of the long weekend. The French CAC (^FCHI) jumped 0.5% after the opening bell and the DAX (^GDAXI) rose 0.2% in Frankfurt.
The ECB has so far resisted calls for a tightening of monetary policy in the face of rising inflationary pressures. The bloc’s headline consumer price index (CPI) is at a record high of 7.5% in March, from 5.9%, and is expected to rise, although the core CPI is around half the rate observed in the United Kingdom and the United States.
Michael Hewson, Chief Market Analyst at CMC Markets, said: “Rising prices are even more painful for countries like Poland, Estonia and Lithuania, where inflation is well over double digits.
“While it might seem easy to ignore these Baltic states, the cries of anguish are now being felt in major northern European economies like Germany, where the CPI is now at 7.3%, and at record highs after unification.
“The ECB is now facing a huge challenge with a 2% inflation target falling by a mile, an inflation forecast now set to be exceeded at 5.1%, and rising bond yields which is likely to hurt the most indebted economies of Italy and Spain.”
Oil prices retreated as the volatile market weighs a larger-than-expected rise in U.S. crude inventories against tighter global supply.
Brent crude (BZ=F) fell 1% to $107.77 a barrel. US light crude (CL=F) was down 1.1% at $103.10 in electronic trading on the New York Mercantile Exchange at the time of writing.
Across the pond, U.S. benchmarks rallied on Thursday and bond yields fell at the start of the earnings season, with early reports from major corporations coming amid the highest inflation in four decades.
Wall Street’s S&P 500 (^GSPC) advanced 49.14 points, or 1.1%, to 4446.59. The tech-heavy Nasdaq (^IXIC) rose 2%. The Dow Jones (^DJI) gained 1%.
The yield on the benchmark 10-year Treasury fell to 2.68% from 2.72% on Tuesday, extending its decline into a second day. Yields fall when prices rise.
Overseas markets followed a rebound on Wall Street overnight, ending a three-day losing streak. MSCI’s broadest index of Asia-Pacific stocks (AAXJ) excluding Japan rose 1.6%.
The Nikkei (^N225) rose 1.2% in Japan, while the Hang Seng (^HSI) edged up 0.5% in Hong Kong and the Shanghai Composite (000001.SS) gained 1. 5%.
South Korean stocks were the exception, falling after its central bank unexpectedly raised its policy rate by 25 basis points to 1.50%, the highest since August 2019, in a bid to rein in the surge in inflation. The KOSPI index (^KS200) fell 0.4%.
Asian markets including Hong Kong, Singapore and Australia are closed on Friday for the Easter holiday, as are major benchmarks in the UK, EU and US.
Watch: How does inflation affect interest rates?