European rate hikes give equities a bloody nose

London — Europe’s post-Credit Suisse rebound spluttered to a halt on Thursday as Switzerland and Norway — and most probably the Bank of England later — showed the year-long cycle of sharp interest rate rises was by no means over.

Stock markets had been relieved when the Federal Reserve hinted at a pause after its latest quarter-point rise on Wednesday. But the sight of the Swiss National Bank (SNB) hiking its rates again despite its torrid week was a reminder not to get too carried away.

The European-wide Stoxx 600 index fell 0.75% with banks and insurers the main culprits again, suffering 1.6%-2% drops.

Norway had also hiked, though MSCI’s main world share index was still in positive territory after overnight gains in Asia.

“The measures announced at the weekend ... have put a halt to the crisis,” the SNB had said, referring to Credit Suisse’s forced marriage with UBS, a view also voiced by Germany’s Bundesbank chief overnight.

The focus now shifts to the Bank of England, with investors expecting a 25 basis-point in its main rate after a surprise jump in inflation quashed hopes of it pausing its tightening campaign.

The pound added to its almost 5% rally over the past fortnight, firming 0.3% to $1.2315 while UK government bond yields, which reflect borrowing costs, were outliers globally as they moved fractionally higher too.

The dollar index, which measures the greenback against the world’s six other main currencies, was licking its wounds after reaching a seven-week low. The euro and yen were stringer on the day, as was the Swiss franc after the SNB’s half-point hike.

Elsewhere in the bond markets, German Bund yields were down at 2.281%, matching the declines seen on 10-year US Treasuries yields that had taken them to 3.440%.

Fed chair Jerome Powell had said on Wednesday that stresses in the banking sector could dent lending and have a big impact on the US economy, reducing the need for the central bank to raise rates to tame inflation.

Bundesbank president Joachim Nagel had even said he now thought the European Central Bank was “approaching restrictive territory” with its rates, referring to a level that curtails growth.

“I do not know when we will more or less be there ... but what I know is that when we are there we have to stay there and not come down too early,” he said.

Wall Street futures were higher after ended sharply lower overnight after the Fed relief was offset by US Treasury Secretary Janet Yellen telling lawmakers that she had not considered or discussed creating “blanket insurance” for US banking deposits without approval by Congress.

Markets are now pricing in about a 65% chance of the Fed pausing at its next meeting, in May, and a 35% chance of a 25bp then, according to the CME FedWatch tool.

Reuters