# Analysis-Investors stick to bets on early end to ECB hikes as uncertainty grows Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-03-16 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: ECB Banking Jitters Reigns in Rate Hike Expectations Meta Description: Investors remain cautious as ECB delivers a large rate hike but holds back on future moves amidst market uncertainty and financial instability risks. URL: https://financedigest.com/analysis-investors-stick-to-bets-on-early-end-to-ecb-hikes-as-uncertainty-growshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-03-16t184558z1lynxmpej2f0x3rtroptp4eurozone-markets-ecb-1736814306075-compressed.jpg) By Yoruk Bahceli and Naomi Rovnick AMSTERDAM (Reuters) – Investors held tight to bets that banking jitters would rein in the ECB’s ability to jack up borrowing costs again in the months ahead, as the central bank delivered a large rate hike on Thursday but wouldn’t signal future moves given an uncertain outlook. The European Central Bank stuck to a 50 basis-point hike, as promised at its previous meeting. [Traders had cast doubt on that move given market](https://www.financedigest.com/analysis-bond-traders-get-their-swagger-back-in-rate-obsessed-markets.html "Analysis-Bond traders get their swagger back in rate-obsessed markets") turmoil sparked by the collapse of U.S. lender Silicon Valley Bank last week, followed by a rout in [Credit Suisse](https://www.financedigest.com/mitsubishi-ufj-to-postpone-at1-bond-issuance-in-credit-suisse-fallout.html "Mitsubishi UFJ to postpone AT1 bond issuance in Credit Suisse fallout") shares spreading banking jitters to Europe this week. The large increase had still been seen as a coin-toss on Thursday after Credit Suisse secured a $54 billion lifeline from the Swiss central [bank that calmed](https://www.financedigest.com/asian-stocks-rally-as-bank-jitters-calm-alibaba-lifts-mood.html "Asian stocks rally as bank jitters calm, Alibaba lifts mood") markets. While the [ECB went big](https://www.financedigest.com/big-fall-in-euro-zone-inflation-offers-little-help-for-ecb.html "Big fall in euro zone inflation offers little help for ECB"), it offered no commitments for the future despite previous calls by several policymakers for bigger moves to contain sticky inflation. President Christine Lagarde noted it was impossible to determine the [future rate path](https://www.financedigest.com/bank-of-england-officials-split-over-future-path-for-rates.html "Bank of England officials split over future path for rates") amid “completely elevated” uncertainty stemming from market ructions. Given financial instability risks, there’s growing uncertainty on future [ECB actions beyond this pre-signalled rate hike,”](https://www.financedigest.com/big-ecb-hike-adds-fuel-to-the-banking-sector-fire.html "Big ECB hike adds fuel to the banking sector fire") said Daniele Antonucci, chief economist and macro strategist at Quintet Private Bank. With no signals from the ECB for the path ahead, traders continued betting on a roughly 50% chance of a 25 basis-point [rate hike](https://www.financedigest.com/ecbs-villeroy-rate-hike-signals-strong-confidence-in-european-banks.html "ECB’s Villeroy: rate hike signals strong confidence in European banks") in May, then rates peaking around 3.2% by August, according to ICAP data. Prior to the [bank sector turmoil](https://www.financedigest.com/banking-turmoil-means-recession-fears-are-creeping-back.html "Banking turmoil means recession fears are creeping back") a 50 bps hike in May had been seen as the most likely outcome and rates had been expected to peak at just over 4% by year-end. Commerzbank lowered its expectations for the terminal [rate to 3.5%](https://www.financedigest.com/bank-of-england-raises-rates-to-3-5-says-inflation-has-peaked.html "Bank of England raises rates to 3.5%, says inflation has peaked") from 4%, while others stuck to previous calls. The [ECB also said it stood ready not only to preserve price](https://www.financedigest.com/explainer-oil-price-surge-changes-ecb-narrative-only-at-the-margins.html "Explainer-Oil price surge changes ECB narrative only at the margins") stability, but also financial stability, and would also consider financial data in its assessment of the inflation outlook, mentions absent in previous statements. Today, forward guidance ended for good,” said Frederik Ducrozet, head of macroeconomic research at Pictet [Wealth Management](https://www.financedigest.com/wealth-management-consultant.html "Wealth management consultant"). The important bit is that financial and [banking stress will be included as inputs into future](https://www.financedigest.com/bank-of-the-future.html "Bank of the future") decisions,” he added. In a demonstration of the tough choices posed for the ECB’s policy outlook by banking uncertainty, sources told Reuters that ECB policymakers agreed Thursday’s 50 bps [hike only after the SNB backed](https://www.financedigest.com/uks-bellway-to-buy-back-shares-hike-social-housing-output.html "UK’s Bellway to buy back shares, hike social housing output") Credit Suisse, and discussions had focused on either the 50 bps move or no hike at all. VOLATILITY Investors were reassured that the ECB appeared to be much more data-dependent going forward. Lagarde emphasized that as the ECB had the tools to provide liquidity to the bloc’s [financial system if needed, there was no trade-off between financial and price](https://www.financedigest.com/biggest-uk-house-price-fall-recorded-since-financial-crisis.html "Biggest UK house price fall recorded since financial crisis") stability. During the 2020 COVID-19 crisis, the [ECB launched an emergency bond](https://www.financedigest.com/ecb-can-cut-carbon-footprint-by-shedding-bonds-of-biggest-polluters.html "ECB can cut carbon footprint by shedding bonds of biggest polluters") buying scheme, calming panicky markets. Last year it unveiled a new anti-fragmentation tool to help contain [bond market stress as interest rates](https://www.financedigest.com/stocks-bonds-extend-rally-on-hopes-rate-hikes-ease.html "Stocks, bonds extend rally on hopes rate hikes ease") rose. Still, [European bank](https://www.financedigest.com/token-inc-launches-london-office-to-answer-demand-from-european-banks.html "Token, Inc. Launches London Office to Answer Demand from European Banks") stocks rose just 1.2% on Thursday, still down 12% since last Friday. They were [set for their biggest weekly](https://www.financedigest.com/londons-ftse-100-edges-higher-set-for-fourth-weekly-gain.html "London’s FTSE 100 edges higher, set for fourth weekly gain") fall since March 2020 Bond yields rose on Thursday, but as [traders stuck to shallower rate hike bets](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike"), two-year German yields remained over 40 bps lower this week in the biggest such drop since 1992. Michael Michaelides, fixed income analyst at Carmignac, said he had expected the ECB on Thursday to [say it was discussing working on new instruments to backstop the banking](https://www.financedigest.com/boes-bailey-says-bank-reforms-worked-but-questions-about-liquidity-buffers.html "BoE’s Bailey says bank reforms worked but questions about liquidity buffers") sector, but “they didn’t even get that far,” he said. Many expected [market volatility](https://www.financedigest.com/the-benefits-of-social-trading-in-a-volatile-market.html "The benefits of social trading in a volatile market") to continue. [“People will not rush to try and buy up anything…you’re not quite sure what the next shoe to drop might be so I think](https://www.financedigest.com/55-of-people-who-regularly-play-sport-dont-think-being-verbally-abusive-to-another-player-makes-them-a-bad-sport.html "55% OF PEOPLE WHO REGULARLY PLAY SPORT DON’T THINK BEING VERBALLY ABUSIVE TO ANOTHER PLAYER MAKES THEM A BAD SPORT") there will be a period of consolidation,” said Jason Simpson, senior fixed income strategist at State Street’s SPDR ETF business. Piet Christiansen, chief analyst at Danske Bank, said he was sticking to a call for a 4% peak [ECB rate](https://www.financedigest.com/fed-rates-up-boe-up-ecb-up-stocks-up.html "Fed rates up, BoE up, ECB up, stocks up"). Unless this turns into a macroeconomic [crisis then we are ripe for a sell-off and a repricing of rate hike](https://www.financedigest.com/asian-shares-gain-as-fears-about-rapid-fed-hikes-bank-crisis-fade.html "Asian shares gain as fears about rapid Fed hikes, bank crisis fade") expectations,” he said. (Reporting by Yoruk Bahceli in Amsterdam and Dhara Ranasinghe, Naomi Rovnick and Chiara Elisei in London; Editing by Dhara Ranasinghe and Frances Kerry) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---