As we continue the month of central banks, we have seen Australia and Canada raise interest rates, and now Europe joins the party. The European Central Bank (ECB) announced a 75 basis point interest rate hike, taking its benchmark deposit rate to 0.75%. This 75 basis point hike was already priced in as the markets expected it.
The ECB is back into positive rate territory after taking interest rates into negative territory in 2014. Rates went into the negative in order to spur the economy and combat low inflation.
The ECB said:
“This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB’s 2% medium-term target,”
It added it “expects to raise interest rates further, because inflation remains far too high and is likely to stay above target for an extended period.”
The ECB revised inflation expectations, forecasting an average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024.
With consumer prices in the Euro zone rising to 9.1% in August, the ECB will have to continue to raise interest rates. Let’s not forget about inflationary pressures being multiplied due to the energy situation in Europe… something which likely gets worse as Europe heads into the colder months.
European equity markets opened negative, but at time of writing, are recovering alongside US stocks.
US and global markets are flipping green. Financial media is attributing this to investors trying to shake off concerns about higher interest rates. But we get our signal from the US 10 year yield which is red right now but could turn around which would mean equity market intraday reversal.
News
At a Q&A, Fed chair Jerome Powell has said that higher interest rates won’t likely cause a deep recession. He also vows to raise rates to fight inflation “until the job is done”.
US mortgage rates close in on 6%, the highest since 2008.
GM is betting its $30,000 all electric Chevrolet Equinox will kick start a massive adoption of EVs. The Detroit automaker is transitioning to exclusively offer electric cars and trucks by 2035.
Mercedes-Benz and Rivian are teaming up to build electric commercial vans in Europe.
Canadian Market News
Magna Mining (NICU.V) has signed a definitive share agreement to acquire 100% of Lonmin Canada including the Denison project and the past producing Crean Hill Ni-Cu-PGE mine. The stock is up over 36% with over 200,000 shares traded.
Naturally Splendid Enterprises (NSP.V) announced that Gordon Food Service Canada (GFS) as a national distributor for their Plentein plant based products. The stock is currently up over 50% with over 1,400,000 shares traded.
Terra Balcanica (TERA.CN) confirms it intercepted a high grade polymetallic vein with the first drillhole completed on its project in Bosnia and Herzegovina. Drillhole CMVDD001 intercepted 824.2 g/t AgEq. over 4.0 m from 29 m of depth, including 1,634.4 g/t AgEq. over 2.0 meters. The stock is up over 26% with volume over 500,000 shares.
Kootenay Silver (KTN.V) drills 5,840 grams per tonne Silver over 2.45 meters within 34.45 meters of 540 grams per tonne Silver at its Columba high-grade silver project in Mexico. The stock is up over 13% with over 220,000 shares traded.
The Very Good Food Company (VERY.V) announced it initiated a process to evaluate potential strategic alternatives to maximize shareholder value which could include the acquisition or merger with an industry partner. The stock is currently up over 12% with 265,244 shares traded.
Chart of the Day
With the Euro Zone finally getting out of negative rate territory, a lot of eyes will be on the Euro. Above is the chart of EURUSD. The Euro has been cratering and had some relief in July only to then sell off again and close below parity (1.00). With the ECB raising rates by 75 basis points, the Euro slightly popped heading into the announcement but is finding resistance at parity. 1.00 will be very important for the currency pair going forward. EURUSD will need to close back above it to make a strong case for reversal.
