European shares fell on Thursday ahead of the bloc’s central bank meeting, where it is expected to outline plans to raise interest rates amid record-high inflation.
The regional Stoxx 600 index fell 0.4 percent in morning trade, with stock markets in the UK, Germany and France all falling.
Eurozone government debt markets stabilized as investors awaited a monetary policy statement from the ECB, which is expected to bring an end to the eight-year policy of keeping interest rates below zero. Germany, which regulates borrowing costs in the eurozone, was flat at 1.35%, around the highest level since 2014.
The ECB has also bought large amounts of eurozone government bonds in recent years to reduce financing costs, in a program that is expected to officially end next month.
“It is the end of the anti-deflation era in Europe and breaking this currency taboo,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.
“We are going back to negative rates and getting out of a world where everything is unusual and special. That is a big change. ”
ECB policymakers also believe discussed new mechanisms to protect weaker countries in the currency bloc, such as Italy, from higher debt costs.
“We expect [the ECB] Hetal Mehta, senior European economist at Legal & General Investment Management, said it would raise interest rates in July and at the next four meetings.
“They will probably also intervene verbally to comfort the markets,” about preventing any “disproportionate increase in borrowing costs for any given country, though still question whether they have a credible program to do so.”
The eurozone central bank is tightening monetary policy as part of a global shift to higher borrowing costs to combat soaring inflation.
U.S. data on Friday is expected to show the world’s largest economy’s annual consumer price growth rate held above 8% in May.
Consumer prices have surged since industries reopened following shutdowns, and coronavirus-related sanctions and supply chain disruptions caused by Russia’s invasion of Ukraine have pushed up energy costs and food goes up. US and European government bonds have been heavily sold off in anticipation of further inflation and rate hikes, while the FTSE All World index of global stocks has lost nearly 14% so far this year.
However, commodity futures trading implies that Wall Street stocks will rise on Wednesday, with contracts tracking the blue-chip S&P 500 index adding 0.6%.
Yields on 10-year US Treasuries, which are inversely proportional to the price of benchmark debt securities, were stable at just over 3%, reflecting the Fed’s move to raise key interest rates above this level next year.
In Asia, the broad FTSE index of shares outside Japan fell 0.4%, while the Nikkei 225 in Tokyo closed flat.
Yen hit a new 20-year low against the dollar ¥134.55 before falling back to ¥133.3.
Traders are betting against the Japanese currency after Bank of Japan Governor Haruhiko Kuroda vowed to support the economy with “robust” monetary stimulus and in his subsequent statement. he retracted, saying that consumers “tolerable” the price increase.
The price of Brent crude, down 0.2 percent to $123.2 a barrel, is up more than 50 percent so far this year.
