Wednesday, February 28, 2024

European Markets Open Lower as Investors Eye Central Bank Decisions This Week

HomeStock-MarketEuropean Markets Open Lower as Investors Eye Central Bank Decisions This Week

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European stock markets had a weak start to the trading week, dipping lower in early morning deals on Monday as investors turned cautious ahead of major central bank policy decisions lined up over the next few days.

The pan-European STOXX 600 index opened down 0.2% in early trade, with most sectors and major bourses in negative territory. Mining stocks were a bright spot, eking out a 0.3% gain, while household goods makers fell 0.5%. The losses follow a mixed trading session for Asian indices overnight, which were also subdued as investors held off on big bets before pivotal monetary policy moves.

The Federal Reserve’s highly anticipated interest rate decision will be announced on Wednesday. Market players widely expect the U.S. central bank to hold rates steady this week, but they will be closely parsing Fed statements for clues about policymakers’ stance on stubbornly high inflation. Traders currently see a divided Fed weighing risks of overtightening against the need to firmly bring down pricing pressures.

“With U.S. core CPI remaining stubbornly high at 6.3% in August, the Fed needs to reiterate its commitment to restore price stability, even at the cost of pain,” said Peiqian Liu, China economist at NatWest Markets.

Other central banks due to meet this week include Australia’s, which will release minutes from its September 5 policy gathering on Tuesday per the official schedule. The Bank of Japan concludes its monetary policy meeting on Friday, while China’s People’s Bank of China is also expected to put out its loan prime rate decisions the same day, according to the institutions’ websites.

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Last week, the European Central Bank raised its key interest rates by 75 basis points, marking the 10th consecutive hike that has taken the ECB’s main refinancing rate to a record high of 4%, in an ongoing bid to rein in soaring inflation.

Rate-setters around the world have been aggressively tightening monetary policy this year to tackle the strongest inflation pressures in decades. In Europe, consumer price growth reached a record 9.1% in August, far exceeding the ECB’s 2% target, as the fallout from the Russia-Ukraine conflict has driven up food and energy costs globally.

Central banks have had to weigh risks of potential economic damage from rapid policy tightening against the need to firmly curb pricing pressures before they become entrenched. The policy dilemma has whipsawed financial markets this year.

SocGen Share Price Tumbles 6% as New CEO Targets Cost Cuts

French banking major Societe Generale saw its share price tumble over 6% on Monday after newly installed CEO Slawomir Krupa unveiled his first strategic plan focused on boosting profitability through major cost reductions by 2025.

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Krupa, who took over the CEO role in May, has targeted a 9–10% return on tangible equity (ROTE) ratio for SocGen by 2026, up from 5.6% ROTE reported at end-June.

To help achieve this, the bank plans to lower costs by cutting 2,650 jobs in its global banking and investor solutions division while exiting some business activities completely. SocGen also aims to reduce operating expenses by 2.7 billion euros ($2.7 billion) by 2025.

French retail banking revenues fell 13.6% for SocGen last quarter as interest income declined. The bank swung back to profitability in the second quarter of 2022 after seeing losses in the first three months of the year.

SocGen’s share price was down over 6% in early Monday deals, making it one of the worst performers on the French CAC-40 index, which itself slipped 0.5%. SocGen’s stock has fallen nearly 20% year-to-date amid a volatile year for banking stocks.

European Indices Open Week Lower; Fed Decision Looms

European markets kicked off the trading week on the backfoot, with regional equities opening moderately lower on Monday as investors awaited key central bank policy moves and announcements.

The Europe-wide STOXX 600 slipped 0.2% in early deals. The German DAX shed 0.31%, while France’s CAC-40 fell 0.55%.

In the U.K., the FTSE 100 bucked the downward trend across the continent, trading marginally higher after the new government unveiled details of its energy support package for businesses over the weekend.

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With many central banks lined up to meet this week, most analysts expect equities to remain rangebound in the coming days absent major surprises. Attention will remain focused on the Fed’s rate decision and forward guidance on Wednesday.

The Bank of Japan and People’s Bank of China will also convene later in the week. Last week, the ECB delivered its 10th consecutive rate hike, underscoring its commitment to stamp out runaway inflation even if it risks tipping the economy into recession.

Market players will be monitoring central bank communication closely for any evolution in how policymakers are assessing risks of rising rates on growth against the need to maintain a firm hand on inflation expectations. Any signals either way could have an outsized impact on asset prices.

For now, with many unknowns still at play, investors seem content to wait on the sidelines for more clarity before making bigger market bets.

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Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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