European Investors Cautious Ahead of ECB Meeting

European stock markets are trading cautiously on Thursday morning as investors do not want to take risks ahead of the European Central Bank (ECB) leaders’ decisions on interest rates.

The STOXX 600 index of leading European stocks was up 0.1 percent at 9:30 AM, following yesterday’s decline.

This morning, the London FTSE index strengthened by 0.25 percent to 7,545 points, while the Frankfurt DAX slipped 0.14 percent to 15,630 points, and the Paris CAC fell 0.18 percent to 7,209 points.

Investors are cautious as they await decisions and messages from the leaders of the European Central Bank (ECB) from today’s regular meeting.

Some analysts expect a further interest rate increase, the 10th in a row, by 0.25 percentage points. In that case, the interest rate that the ECB pays on bank deposits would reach four percent, the highest level since the euro was introduced in 1999.

On the other hand, there are also analysts who believe that the ECB will keep interest rates unchanged at this meeting and wait for further data to show whether inflationary pressures are easing in the eurozone.

Meanwhile, stock prices on Asian markets have risen. The MSCI index for the Asia-Pacific region, excluding Japan, was up 0.6 percent around 9:30 AM.

In Tokyo, the Nikkei index strengthened by 1.4 percent, while stock prices in Australia, Hong Kong, Shanghai, and South Korea rose between 0.4 and 1.5 percent.

Thus, the markets are following yesterday’s rise on Wall Street. However, the Dow Jones fell by 0.20 percent, while the S&P 500 rose by 0.12 percent, and the Nasdaq index increased by 0.29 percent.

In focus for investors was the inflation report, which showed that consumer prices in the U.S. rose by 0.6 percent month-on-month in August, the highest this year, while they were up 3.7 percent year-on-year.

The strengthening of inflationary pressures is primarily due to rising oil prices during that month.

The core inflation rate, which excludes food and energy prices, rose by 0.3 percent month-on-month and 4.3 percent year-on-year in August, slower than the previous month.

The slowdown in the core inflation rate has encouraged investors and supported the thesis that the U.S. central bank will not further increase interest rates in September.

– I think the Fed does not want to shock the market with a new interest rate increase of 0.25 percentage points when it is expected to keep rates unchanged. However, another rate increase by the end of the year is not excluded – says Victoria Fernandez, strategist at Crossmark Global Investment.

Although no interest rate increase is expected at the upcoming Fed meeting, investors are cautious as the period of elevated inflation could last, which would mean that the Fed would keep elevated rates longer than expected.

According to a Reuters survey, it is unlikely that the Fed will start lowering rates before April next year.