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MARKET WRAP: BoE hikes rates, ECB opens the door to 2022 increase

© Reuters.

Key Points

FTSE 100 closing price of 7,536.52 (-0.6%)
Bank of England hikes rates by 25 basis points
European Central Bank hike could soon be on the table
EUR strengthens after ECB, GBP mixed
FTSE edges lower
Meta has a meltdown as Mark Zuckerberg loses $30 billion
Crude moves higher
Bitcoin lower after struggling to break resistance

By Samuel Indyk – Focus on Thursday was on the Bank of England and European Central Bank meetings. The Bank of England lifted its interest rate for the second consecutive meeting, this time by 25 basis points to 0.50%. Four of the nine members of the Monetary Policy Committee decided it would be best to hike by 50 basis points in an attempt to get inflation under control. The central bank sees inflation peaking above 7.0% in April this year.

Initial reaction saw strength in the pound with EUR/GBP dropping below 0.8300 to its lowest level since February 2020. The yield on the benchmark UK 2-Year rose above 1.16% to its highest level since March 2011.

Next up on the calendar was the ECB decision. There were no surprises in the statement, with the majority just a copy and paste job following December’s moves on the various asset purchase programmes. However, President Christine Lagarde rowed back on her previous comments that the ECB was “very unlikely” to raise rates this year, saying that the bank will be “data dependent” and there were “no pledges without conditionalities”.

“It’s clear that the next meeting on 10 March will be the critical one,” Lloyds (LON:LLOY) Bank analysts said in an emailed note. “It is possible that an earlier end to asset purchases, say in Q3, could be announced at the March meeting, which would pave the way for a possible rate rise in Q4.”

ECB sources later told Reuters that a sizeable minority of policymakers wanted a change at this meeting.

The Euro strengthened following Lagarde’s comments with EUR/GBP reversing course and trading just shy of 0.8400. EUR/USD traded back above 1.1400 to its highest level since 17th January.

The FTSE 100 declined following the hawkish central bank announcements.

BT (LON:BT) shares were lower after the company said underlying revenue dropped 2% in the 9-months to 31st December to £15.7 billion. The company said it expects group adjusted revenue to fall around 2% in the financial year but kept other guidance metrics unchanged.

The telecoms company also announced it had entered exclusive discussions with Discovery (NASDAQ:DISCA) that would be a 50/50 joint venture between its BT Sport unit and Discovery’s Eurosport UK.

“BT is making tracks to improve its content position, which in today’s climate is no bad thing,” Hargreaves Lansdown (LON:HRGV) Equity Analyst Sophie Lund-Yates said. “That said, there’s an argument that sport is a lot more sheltered from changing media habits than other mediums, so while BT can’t rest on its laurels, it has a bit more breathing room.”

Over in the US, focus was on Meta Platforms (NASDAQ:FB) which was on course for the biggest daily collapse in market value for any US company. Shares were down by as much as 26% at the close of European markets as the company reported a fall in daily active users and said that changes to Apple’s policy on data gathering would impact the business by around $10 billion in 2022. Mark Zuckerberg’s wealth was estimated to have dropped by over $30 billion according to the Bloomberg Billionaires Index.

Major cryptocurrencies continued to edge lower after Bitcoin failed to break above key downward trendline resistance. The largest crypto by market cap currently trades just below $37,000.

“Bitcoin is also not faring well in the monetary tightening environment although it’s the impact it’s having on broader risk appetite that’s probably the most damaging aspect of that,” OANDA Senior Market Analyst Craig Erlam said. “We could see it consolidate in this region in the near-term, with a significant break of $30,000 potentially triggering another aggressive move lower.”

Meanwhile, WTI and Brent crude futures were relatively steady the day after the OPEC+ group decided to maintain their planned monthly production increases of 400,000 barrels per day in March.


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MARKET WRAP: BoE hikes rates, ECB opens the door to 2022 increase

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