European markets open to close, Tuesday 27 June: Stoxx, FTSE, Dax, Cac

ECB Governing Council member Mārtiņš Kazāks believes 2024 is “way too early” to start cutting rates and markets are getting ahead of themselves.

Speaking to CNBC, Kazāks, governor of the central Bank of Latvia, said it would be crucial to watch core inflation closely as this could pull the headline rate back up again.

“As to rates, how far up they will go, we cannot tell at the moment. But I would say it’s not only how high up into restrictive territory rates will go but also how long will they stay there, and currently I think the markets are making the mistake of thinking the rates will come down much, much quicker, which in my view is inconsistent with the baseline we currently have,” he said at the ECB Forum in Sintra.

“First off, next year is way too early. I would see personally for rates to start coming down, for rate cuts to be necessary, is only when we see that inflation does significantly and persistently fall below our target of 2%.”

“Before that, if inflation with these rates converges at 2%, why should we start cutting the rates?” he said.

Asked whether this means no rate cuts for at least three years under the ECB’s current projection horizon, Kazāks said the projections bake in market expectations on interest dynamics. If markets are wrong about the pace of cuts then inflation dynamics will change, with inflation falling more quickly if rates stay higher for longer, he said.

— Jenni Reid

European Central Bank President Christine Lagarde said Tuesday euro area inflation is “too high and is set to remain so for too long.”

“But the nature of the inflation challenge in the euro area is changing,” Lagarde said.

“This persistence is caused by the fact that inflation is working its way through the economy in phases, as different economic agents try to pass the costs on to each other.”

 Read the full story here.

— Silvia Amaro

Major central banks will have to keep interest rates high for much longer than some investors expect, Gita Gopinath, first deputy managing director of the International Monetary Fund, told CNBC.

“We also have to recognize that central banks have done quite a bit … But that said, we do think they should continue tightening and importantly they should stay at a high level for a while,” Gopinath said.

“Now this is unlike, for instance, what several markets expect, which is that things are going to come down very quickly in terms of rates. I think they have to be on hold for much longer.”

Read the full story here.

— Silvia Amaro

European stocks were mixed in morning trade after ending six straight sessions in the red.

The benchmark Stoxx 600 index moved between narrow gains and losses and was down 0.04% at 9:50 a.m. London time.

The U.K.’s FTSE 100 was up 0.13% as banks and insurance stocks led sector gains, up 0.6% and 0.3%, respectively.

France’s CAC 40 eked out a 0.05% gain while Germany’s DAX was 0.05% lower.

Central bankers from different parts of the world are gathered in Portugal for the European Central Bank Forum — and inflation is the hot topic of conversation.

Gediminas Šimkus, chairman of the board at the Bank of Lithuania, told CNBC Monday: “It’s very clear for me that we need at least one more hike and it is going to happen, I think, in July.”

“Seeing all this sort of … environment, and also the market expectations of the interest rate path, and also given that, as you rightly mentioned, the stickiness on inflation and the upside risks, I think I would not be surprised to discuss at the Governing Council, a hike also in September,” he added.

The Stoxx 600 opened higher by about 0.13% on Tuesday, as investors set aside geopolitical concerns from Russia and monitored comments from central bankers at the ECB Forum in Sintra.

Basic resources led the sector gains in early deals. It comes after China’s Premier Li Qiang said Beijing would be putting forward more effective policies to expand domestic demand.

— Silvia Amaro

Looking ahead to Tuesday’s trade, the FTSE 100 is seen higher by 29 points at 7480; the CAC 40 in France is set to start trading up by 28 points at 7212; and the DAX in Germany is set to open stronger by 44 points at 15853, according to IG data.

— Silvia Amaro

Despite Monday’s move down, stocks were still on pace to finish the month and second quarter — which both conclude with Friday’s close — higher.

Here’s where each of the three major indexes stand, including notable honorifics:

The Dow:

• Month-to-date: up 2.5% (on pace for best month since January)
• Quarter-to-date: up 1.3% (on pace for best quarter since the fourth of 2022)

The S&P 500:

• Month-to-date: up 3.6% (on pace for best month since January)
• Quarter-to-date: up 5.3%

The Nasdaq Composite:

• Month-to-date: up 3.1%
• Quarter-to-date: up 9.1% (would mark fourth straight positive month)

— Alex Harring

The Japanese yen lingered at seven-month lows despite the country’s finance minister warning the government would respond if the currency depreciates excessively.

The yen was trading around 143 yen to the U.S. dollar, its weakest since Nov. 11 when it sank to 146.2 yen.

This follows a similarly-worded warning Monday from Vice Finance Minister for International Affairs Masato Kanda.

Last year, Japan’s Finance Ministry intervened with roughly $68 billion to prop up the yen on three separate days: Sept. 22, Oct. 21 and Oct. 24 — as the currency notched 150 against the greenback, weakening to levels not seen since 1990.

A policy divergence between the Bank of Japan’s ultra easy monetary policy and the U.S. Federal Reserve’s aggressive tightening stance against inflation is driving dollar strength.

— Clement Tan