Markets tread water as ECB president urges caution despite ‘significant progress’

European stocks eked out moderate gains on Tuesday despite hawkish comments from European Central Bank (ECB) president Christine Lagarde about the likely trajectory of interest rates and inflation in the single currency area.

Speaking at the ECB’s annual conference in Sintra, Portugal, Ms Lagarde said that the nature of the inflation problem in the euro zone is changing, and interest rates will need to be higher for longer than policymakers had previously estimated.

“We have made significant progress,” Ms Lagarde said. “But, faced with a more persistent inflation process, we cannot waver, and we cannot declare victory yet.”

The central bank won’t be able to say in the near term with confidence whether the peak in interest rates has been reached, she added.

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DUBLIN

Slightly outperforming some of its peers, the Iseq index added more than 0.8 per cent on Tuesday, with heavy-hitters such as CRH gaining momentum.

The building materials giant’s Dublin-listed shares were up more than 1.2 per cent to €48.90 while insulation maker Kingspan added 1.8 per cent to finish out the session at €1.82 per share.

Ryanair, meanwhile, gained more than 2.2 per cent to €16.63 per share after forecasting 50 per cent growth in its eastern and central Europe passenger numbers over the past decade.

Irish bank stocks were again mixed, with Bank of Ireland off by more than 0.6 per cent to €8.56 per share while its rival AIB fell similarly to €3.82. Permanent TSB bucked the trend, adding 0.5 per cent to close at €2.13 per share.

EUROPE

European stocks inched moderately higher, failing to keep up positive momentum that lifted Asian stocks earlier in the session, as investors focused on concerns about the economic outlook for Europe and the United States.

The blue-chip Stoxx 50 index eked out a 0.6 per cent jump while the pan-European Stoxx 600 remained flat on the session.

European banks gained after Ms Lagarde’s comments, adding fuel to bets that euro zone interest rates could remain elevated for some time. Spanish lender Santander added more than 3 per cent while its Italian counterpart Intesa Sanpaolo was up 1.2 per cent and ING added 1.2 per cent.

Auto stocks, meanwhile, were dragged lower by Volkswagen, which slipped 1.6 per cent after the German carmaker announced it is planning to cut back production of one of its electric SUV models due to weak sales. Energy shares lagged behind, weighed down by TotalEnergies after it was sued again over a project to pump oil in Uganda.

LONDON

UK stocks trod water with the mid-cap FTSE 250 up by about 0.5 per cent on the session while the benchmark FTSE 100 inched forward by 0.1 per cent, bouncing back from the longest losing streak in British shares since the Covid-19 pandemic.

Bank of America strategists last week characterised the UK as the “stagflationary sick man of Europe” in a note last week, pointing to a combination of high prices and economic contraction, a “crumbling” National Health Service, 6 per cent mortgage rates, and a UK yield curve that is the most inverted since 2000.

But UK banks helped lift the index on Tuesday amid expectations that interest rates could continue to rise as central banks struggle to cool inflation. Lloyds and its rival Barclays added about 1 per cent each, as did HSBC.

Aer Lingus parent IAG, meanwhile, was one of the best performers on the day, up 2.6 per cent. The airline group, which also owns British Airways, made its gains amid reports that its bid for TAP Air Portugal is progressing.

Oil majors Shell and BP fell by 1 per cent and 1.3 per cent on plunging oil prices on renewed concern about interest rates.

NEW YORK

A rally in tech stocks pushed the main Wall Street indices higher on Tuesday.

The S&P 500 halted a two-day slide, with Tesla climbing after a plunge of more than 6 per cent.

Cloud computing player Snowflake rallied on an artificial intelligence-related partnership with Nvidia. Facebook’s parent Meta gained as Citigroup lifted its target, while Alphabet fell after an analyst said Google’s owner was moving “too fast” in AI.

In other corporate news, American Equity Investment Life surged to a record on foot of a $4.3 billion bid for the insurer. Carnival rallied as several analysts increased their targets for the cruise line operator. Delta Air Lines, meanwhile, rose after boosting its earnings expectations.

– Additional reporting: Bloomberg, Reuters