FRANKFURT: European equities see-sawed on Thursday, ultimately eking out gains after the European Central Bank’s President Christine Lagarde’s more hawkish commentary overshadowed a widely expected rate cut.
The pan-European STOXX 600, which was initially in positive territory, abruptly reversed course, crawling into the red as Lagarde’s remarks about the bank being “well-positioned” to handle global economic uncertainty sent a signal to investors to temper dovish expectations.
The benchmark index finally edged up 0.2%.
The ECB lowered borrowing costs by 25 basis points – a move largely priced in by markets. But Lagarde’s hint at a pause in the year-long easing cycle after inflation finally returned to its 2% target sent futures markets repricing their dovish bets.
The interest rate path implied by markets sees a pause in July and anticipates just one more cut towards the end of the year, possibly in December.
“That was the last no-brainer cut. The life of Europe’s central bankers will be more difficult from now on. We do think more cuts are on the cards, but the ECB gave us little to work with in terms of their size and timing,” said Roelof Salomons, chief investment strategist for the Netherlands, BlackRock Investment Institute.
The banking sector bounced back from an early dip to emerge as the day’s top sectoral performer, benefiting from the prospect of rates staying higher for longer.
Conversely, the rate-sensitive real estate sector, initially buoyed by the rate cut, saw its gains evaporate after Lagarde’s remarks, closing 0.2% lower.
The broader consumer discretionary segment bore the brunt of the market’s recalibration, with food and beverage stocks – bellwethers for consumer spending – suffering the steepest declines.
Luxury stocks, another segment heavily reliant on consumer confidence, trailed closely behind as the second-worst performer.
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