European stocks dip ahead of ECB meeting

Eurozone GDP and employment rise by 2.2% and 0.7% respectively

European stocks traded down on Wednesday, with investor sentiment anxious ahead of Thursday’s European Central Bank meeting. 

US and Asian trading 

US trading provided scant succour ahead of the opening bell. With the 10-year Treasury yield rising to a two-month high, the Nasdaq closed Tuesday flat while the Dow Jones and S&P 500 traded 0.7% and 0.3% lower, respectively. 

Asian markets were similarly choppy, with China’s recent momentum waning and the Bombay Sensex flat. 

Japan stood out as a notable exception, as data showing that the Japanese economy grew by 1.9% in the second quarter helped investor sentiment. Confidence had already been given a recent boost by Prime Minister Yoshihide Suga’s decision to step down.

The Nikkei 225 closed Wednesday 0.89% higher, up 5.7% in the past week. 

ECB meeting looms

European markets could recover lost ground later in the day if the latest job openings data and labour turnover survey from the US Labor Department prove positive. However, the European Central Bank’s Thursday meeting will be foremost in the minds of traders and investors. 

Last week, Eurostat estimated that annual inflation in the region for August stood at 3.0%, an 0.8% increase on the previous month and the highest reading in a decade. 

On Tuesday, the statistics body stated that GDP and employment within the eurozone rose by 2.2% and 0.7% in the second quarter of 2021. 

Robert Holzmann

Writing in The EUROFI Magazine following the latest data, ECB policymaker Robert Holzmann stated: “There is the possibility that we may be able to normalise monetary policy sooner than most financial market experts expect.”

The governor of the Austrian central bank and former senior vice-president of the World Bank added: "I see potential upward price pressures coming from persisting global supply bottlenecks, mounting labour shortages in several sectors, pent-up demand and higher savings triggering a stronger spending spree, cost effects from effectively implementing climate change policies, and last but not least, higher headline inflation getting entrenched into inflation expectations.”

Whether Holzmann is representative of other ECB decision makers will only become clear following Thursday’s meeting. Scepticism as to an imminent tapering of ECB support can nonetheless be said to be prevalent. 

By mid-morning, the pan-European Euro Stoxx 600 traded 0.7% lower at 469.39, having fallen by as much as 0.7%. Siemens Gamesa Renewable Energy stood out as the index’s worst performer, down by 6.7% after JPMorgan cut the stock to neutral. 

Further reading: Eurozone Q1 GDP contraction smaller than previously thought

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