ECB meets to discuss bond rout as markets anticipate Fed rate rise – business live

Show key events only Live feed Show key events only 6m ago 08. 41 Schmieding goes on to say: . css-knbk2a{height:1em;width:1.

5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Mind the fundamentals: Some spread widening amid an overall rise in yields is normal. As long as it remains consistent with the inflation backdrop and the pace of nominal growth, it should not present an imminent risk even for fiscally challenged Italy. We expect inflation to settle around 2.

5% eventually. Adjusting for such an inflation forecast, the real financing costs of Italy are still quite bearable. Inflation lifts tax receipts and reduces the real value of outstanding debt.

Walking a tightrope to a soft landing: Engineering a soft landing for economies battered by external shocks and facing the highest inflation in decades will be as hard as it sounds for all major central banks. The extra challenge for the ECB is that its policies affect borrowing costs in 19 economies with different fundamentals. The ECB seems to believe that it can deter excessive “fragmentation” through “constructive ambiguity”, that is by simply warning markets that it may step in under unspecified circumstances.

But markets hate uncertainty. They may want to test the ECB’s resolve. To contain the risk of further turmoil that may hurt confidence and economic performance across the Eurozone, the ECB needs to answer two key questions: 1) exactly what tool would it use to prevent excessive fragmentation; and 2) what is the threshold for using it? If the ECB pulls that off, it will have an easier time pursuing its ultimate goal of returning Eurozone inflation to a sustainable rate while running a lower risk of serious economic damage in doing so.

Updated at 08. 42 BST 8m ago 08. 40 Holger Schmieding, chief economist at Berenberg Bank, explains: .

css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Periphery under pressure: Even before the European Central Bank (ECB) has hiked rates, Italian, Greek, Spanish and Portuguese spreads versus German bunds are widening amid a broad-based tightening of financial conditions across the Eurozone. With memories of the European debt crisis still fresh, investors are asking how and under what circumstances ECB president Christine Lagarde would deliver on the promise she made in her blog from 23 May to act against “excessive fragmentation” if required after the end of net asset purchases.

Markets sold off after the ECB’s monetary policy statement last Thursday referred only vaguely to a “flexible” use of instruments to safeguard the transmission of monetary policy. In an emergency meeting today, the ECB may finally reveal its hand. Still far off euro crisis 2.

0: The situation today is different from the euro crisis a little more than a decade ago. 1) The ECB has turned into a proper lender of last resort with a tool called “OMT” to intervene heavily for countries that are granted support from the ESM [European Stability Mechanism]. 2) Many economies have improved their trend growth through reforms.

For example, Greece and Portugal are consistently outperforming the eurozone average with real GDP in Q1 2022 surpassing the pre-pandemic level Q4 2019 by 3. 0% and 1. 2% respectively, well ahead of the Eurozone as a whole (0.

8%) and a still largely unreformed Italy (0. 0%). 3) NextGenEU grants of between 5% (Italy) and 9% (Greece) of annual GDP will support public investment and growth over the next four years.

4) Italy’s spread remains well below previous crisis levels. 28m ago 08. 20 Italian bond yields tumble, euro rises as ECB set to discuss bond turmoil Italian bond yields have fallen back on the news that the European Central Bank’s rate-setting governing council will hold an unscheduled meeting this morning to discuss the recent sell-off in government bonds, which had pushed yields sharply higher.

Investors breathed a sigh of relief, after government borrowing costs across the eurozone jumped to multi-year highs this week — amid growing expectations of an aggressive US interest rate hike later today, and concern about the lack of an ECB plan to tackle signs of strain in eurozone bond markets. The yield on Italy’s 10-year bond fell 20 basis points to 4%, down from eight-year highs hit this week. Spanish, Portuguese and Greek bond yields were also down sharply in early London trade.

The euro rose on the news and is currently trading 0. 6% higher at $1. 0477 against the dollar.

Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, told Reuters: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} We should get a statement along the lines reflecting a willingness to act and then maybe they will also task committees to work on options, this is what was missing from last week [when the ECB had a scheduled meeting].

ECB board member Isabel Schnabel, the head of the central bank’s market operations, said yesterday that the ECB was “closely” monitoring the situation and was ready to deploy both existing and new tools if it found that the market moves were “disorderly”. We might get an @ecb statement along the lines of @Isabel_Schnabel ‘s speech. Some details about PEPP reinvestments would be welcome.

And they could task the relevant committees to work on policy options for a backstop, which they didn’t do at the June meeting. — Frederik Ducrozet (@fwred) June 15, 2022 We’ll see if and when we get more details, but the main message is that the Governing Council is taking this seriously. Last week’s big disappointment was that apparently they did not even discuss fragmentation much.

https://t. co/417KkGsg3h — Frederik Ducrozet (@fwred) June 15, 2022 Updated at 08. 24 BST 40m ago 08.

07 And we’re off. European shares have notched up some decent gains at the open, following increases in several Asian markets (Hong Kong’s Hang Seng rose 1% while Japan’s Nikkei edged down 0. 1%).

UK’s FTSE 100 up 58 points, or 0. 8%, to 7,425 Germany’s Dax up 1. 3% France’s CAC up 1.

3% Spain’s Ibex up 1. 5% Italy’s FTSE MiB up 650 points, or 2. 9%, at 22,495 1h ago 07.

51 Introduction: Markets on tenterhooks, dollar hits 20-year peak ahead of Fed rate decision Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets. Markets are on tenterhooks, and the dollar hit a 20-year peak ahead of the interest rate decision from the US Federal Reserve later today. Investors are waiting to see how aggressive America’s central bank will be in raising rates, with fears that a bigger hike could tip the economy into recession.

The question is whether the Fed will raise rates by 0. 50 or 0. 75 percentage points to tackle soaring inflation.

The latter would be the biggest increase since 1994. The dollar hit a 20-year high against a basket of currencies, and rose to 135. 60 against the yen, the highest since 1998.

The European Central Bank is to hold an unscheduled meeting this morning to discuss the recent sell-off in government bond markets. Bond yields have risen sharply since the ECB promised a series of rate rises last Thursday and the spread between the yields of German bonds and those of more indebted southern nations, particularly Italy, soared to the highest in more than two years. Global markets plunge as Fed mulls biggest rate rise in decades Read more Stock markets have been plunging in recent days, and on Wall Street the benchmark S&P 500 fell almost 4% into bear territory on Monday.

Analysts at Goldman Sachs said: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Against a backdrop of sky-high inflation, rising rates and growing recession concerns, the S&P 500 has had its worst start to the year since 1962.

A likely coming peak in inflation is probably not sufficient to see the bottom, and in the past similar drawdowns have only ended when the Fed has shifted towards easier policy. The pound fell yesterday to its lowest level against the dollar since the onset of the Covid pandemic amid growing concern over the strength of the British economy. It traded below $1.

20 for the first time since March 2020, as the dollar strengthened, but is back above $1. 20 this morning. The Bank of England is expected to raise interest rates by 0.

25 percentage points on Thursday, lifting its base rate to 1. 25%. Pound falls to lowest level since pandemic crash Read more Michael Hewson, chief market analyst at CMC Markets UK, said: .

css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} A responsible Fed would look to wrestle back the narrative and do what it said it would do, which means we need to see 50 basis points today, with a hawkish pivot at the very least, especially if it wants to be taken seriously when it comes to future guidance. It’s also not apparent what a pivot to 75bps would achieve when the Fed could simply deliver a 50bps hike today and then throw the prospect of 75bps into the hat for July, as well as September.

Given that market pricing had been for a possible pause in September that is still a hawkish pivot, and guidance tends to be half the battle when it comes to policy adjustments. As such it seems more likely we’ll see a 50bps move today, along with hawkish guidance for 75bps in July, as well as September, but very much dependant on the data. There was some good news out of China, where the economy showed signs of recovery, as industrial output grew 0.

7% in May from a year earlier , after falling 2. 9% in April, according to official figures released today. China’s exports grew in double digits last month, as factories cranked up again following the easing of Covid restrictions.

However, consumer spending remains weak because of China’s zero-Covid policy, with full or partial lockdowns in dozens of cities in March and April. Retail sales fell 6. 7% in May, an improvement from April’s 11.

1% slump. Iris Pang, chief China economist at ING, said: . css-knbk2a{height:1em;width:1.

5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Activity data paints an economic recovery picture in May, but only a slow one. The government is likely to respond to this economic weakness by delivering more fiscal stimulus. In Asia, stocks were mixed and European markets are expected to open slightly firmer after the better-than-expected Chinese data.

The Agenda 9am BST: IEA Oil market report 10am BST: Eurozone trade and industrial production for April 1. 30pm BST: US retail sales for May 7pm BST: US Federal Reserve interest rate decision (forecast: 1. 5%) 7.

30pm BST: US Federal Reserve press conference Updated at 08. 34 BST Topics Business Business live Stock markets Currencies Commodities Reuse this content.