European Markets Up As Bank Of England Raises Interest Rates

On Thursday, equity markets climbed in Europe as investors digested significant interest rate statements from the Bank of England (BoE) and the European Central Bank (ECB).

Despite a stronger pound, the FTSE 100 (FTSE) rose over 1.3% in London, while the CAC (FCHI) rose 1.2% in Paris and the Frankfurt DAX (GDAXI) increased 1.1%.

It happened as the Bank of England raised UK interest rates from 0.1% to 0.25% in an attempt to curb skyrocketing inflation. This was the first increase since the beginning of the coronavirus crisis.

At the same time, the European Central Bank agreed to keep interest rates steady in the face of growing inflation throughout the EU.

The Monetary Policy Committee (MPC) opted 8-1 to act, despite criticism from the International Monetary Fund (IMF), which warned against additional postponements. It also decided 9-0 to keep the level of quantitative easing at £895 billion ($1.2 trillion).

In November, inflation in the United Kingdom reached a 10-year peak of 5.1%, nearly twice the Bank of England's 2% goal, causing financial markets to expect the Monetary Policy Committee (MPC) to raise the cost of borrowing from near historic lows.

The pound sterling (GBPUSD=X) gained nearly a cent versus the US dollar due to the reports, reaching $1.335, a 0.7% increase. The currency has reached its record point in over two weeks.

Bank shares also rose that day, with Barclays (BARC.L) rising 3.8%, Lloyds (LLOY.L) jumping 4.6%, and HSBC (HSBA.L) increasing 4%.

More than that, business organizations are pressing the UK authorities to offer greater assistance to the hotel industry to overcome the effect of the Omicron variant.

Earlier this week, Chris Whitty, chief medical officer, advised people to limit their socializing weeks leading up to Christmas in order to avoid spreading the infection.

Across the Atlantic, the S&P 500 (GSPC) declined 0.1%, while the Nasdaq Index (IXIC) sank 1.4%. By the end of the European session, the Dow Jones (DJI) had risen 0.4%.

On Wednesday, all three major Wall Street indices rose as the Fed stated that it will accelerate the tapering of its monetary assistance to $30 billion every month, noting that it forecasts three interest rate rises in 2022 and three more in 2023.

The announcement happened after the United States inflation rate jumped to 6.8% last month, a record level since 1982. But, the rhetoric and the press briefing indicated that they continued to believe that the present level of inflation was going to be temporary.

Naeem Aslam from Think Markets pointed out that the stock market continues to believe that the US is capable of keeping on track and establishing steady economic development in 2022, despite a massive drain on liquidity.

"This is great news for the equity market because the development of the economy leads to more earnings for businesses, which means bigger gains for shareholders as bigger dividends and higher stock prices."

Markets in Asia followed Wall Street's lead on the night, with the Nikkei (N225) rising 2.1% in Tokyo as the dollar's surge versus the yen aided exporters.

In Hong Kong, the Hang Seng (HSI) climbed about 0.4%, while the Shanghai Composite (000001.SS) increased 0.8%. Seoul, Taipei, Manila, and Jakarta markets all rose on the day.