European shares opened lower on Thursday as traders took a signal from a central bank meeting that interest rates could rise further to curb sticky inflation.
Europe’s Stoxx 600 opened 1.2 percent lower, extending losses for the week, while France’s Cac 40 fell 1.5 percent. London’s FTSE 100 index fell 1.3%.
The decline came as the Swiss National Bank raised its main policy rate by a quarter of a percentage point to 1.75 percent and did not rule out further hikes in the medium term to stabilize prices. Norway’s central bank raised its key interest rate to 3.75% from 3.25% and said it may raise rates again in August.
Later on Wednesday, the Bank of England was expected to raise interest rates by 25 basis points to 4.75% after UK core inflation hit its highest level since 1992. However, traders also see as high a 50% chance of a 0.5 percentage point rise and see a peak of 6% early next year.
“A move of 50 basis points would surprise market consensus, leading to potentially volatile repricing as the market adjusts probabilities to incorporate a faster pace of rate hikes,” said Michael Siviter, senior portfolio manager at Invesco Fixed Income.
The two-year gilt yield, which is sensitive to interest rate changes, rose 0.01 percentage point to 5.05%, while the benchmark 10-year yield rose 0.02 percentage point to 4.42%. Bond yields rise as prices fall.
Investors will also focus on the release of June’s EU consumer sentiment survey, with the preliminary indicator expected to rise slightly from -17.4 in May, indicating an improvement in economic confidence among households in the region.
Meanwhile, contracts tracking Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq 100 both fell 0.2% ahead of the New York open.
Both indexes closed lower in the previous session, led by technology stocks, after U.S. Federal Reserve Chairman Jay Powell warned that further interest rate hikes are needed to bring inflation back to its 2 percent target.
Elsewhere, investors are preparing for a meeting of Turkey’s central bank, where newly appointed Governor Hafiz Gay Erkan is expected to raise interest rates in a bid to reverse President Recep Tayyip Erkan’s The low interest rate policy pursued by Doan. Economists at ING forecast a one-week policy rate hike from 8.50% to 20%.
Trading in Asia was thin as stock exchanges in China and Hong Kong were closed on Thursday and Friday for the Dragon Boat Festival.