European stock markets gained 1.20-2.87%. The STOXX Europe 600 index was up by 1.42%. Germany's DAX climbed by 1.36% and France's CAC 40 added almost 1.35%. The British FTSE 100 rose by just 1.2%. Spain's IBEX 35 gained 1.34%. Italy's FTSE MIB was the biggest gainer, adding 2.87%.
The rally in European indices is mainly due to the forthcoming release of the Fed meeting results. Most experts believe that interest rates will be hiked by 75 points at once in order to combat rising inflation. Furthermore, price rises do not affect the economy immediately, they have long-term negative effects which should be prevented wherever possible. Although the decision has not yet been made public, markets have already taken into account the possibility of a rate hike of this magnitude.
Investors are also optimistic about the extraordinary meeting of the ECB governors, which took place yesterday. Several important decisions were made and announced at the end of the meeting. One of them relates to forcing the creation of a special instrument that would reduce fragmentation in the region. In particular, it will be used to reduce the difference in the price of loans for different eurozone member states.
It was also announced that the regulator intends to follow a more flexible policy of investing funds from the Pandemic Emergency Purchase Programme (PEPP) in order to extend the operation of the monetary policy transmission. This mechanism is at this stage a key prerequisite for supporting price stability in the eurozone.
Another important decision last week was to keep interest rates unchanged with the announcement of plans to increase them by 25 points next month only.
Italy has seen a 4% increase in treasury bond yields. This was the first time in the last 8 years. Market participants doubt that the ECB can increase borrowing costs without increasing yields on government bonds of the most vulnerable eurozone member states.
According to the latest data, inflation in France jumped by 5.8% year-on-year last month, reaching an all-time high. On a month-on-month basis, prices rose by 0.8%, beating a preliminary estimate of 0.7%.
Of the STOXX Europe 600 index components, Gerresheimer AG (+15.8%) posted the most significant increase in share price.UniCredit's share price surged by 3.7% on the news that it transferred a €1.1bn portfolio of unsecured loans to Itaca SPV Srl. The deal was the fifth in a government programme to reduce the non-performing loans on the bank's balance sheet.
Due to an increase in revenues in the third quarter of the fiscal year, which surpassed the level for the same period in 2019 by 7%, WH Smith's share price rose by 8.5%.
Getinge AB stock plunged by 17.5% as a result of the worsening outlook for the current year.
Although Hennes & Mauritz AB posted revenues in the second quarter that beat analysts' forecasts by 17%, its share price fell by 6.5%.