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Wall Street jumps and FTSE 100 pushes higher despite ECB interest rate hike

FTSE 100  Christine Lagarde, President of the European Central Bank, listens  during the Institute of International Finance annual membership meeting in Washington, DC, on October 12, 2022. (Photo by Brendan Smialowski / AFP) (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)
The FTSE 100 made shy gains after the ECB, headed by Christine Lagarde, raised interest rates by 75 basis points. Photo by Brendan Smialowski/AFP via Getty

The FTSE 100 (^FTSE) and European stocks struggled to find gains on Thursday as investors continue to weigh rising interest rates and the risk of recession.

The FTSE 100 slipped 0.3% to 7,036 points at the open but managed to recover, while the CAC (^FCHI) was down 1% in Paris to 6,224 points. In Germany, the DAX (^GDAXI) slipped 0.8% to 13,090.

On Wall Street, the main indices jumped after data showed that the US economy grew at a faster-than-expected pace in the third quarter.

The Dow Jones (^DJI) gained 1.3% to 32,245 while the S&P 500 (^GSPC) advanced 0.1% to 3,845 points. The tech-heavy Nasdaq (^IXIC), however, slipped 0.7% to 10,948 as investors continue to digest disappointing results from Microsoft (MSFT) and Alphabet (GOOG) from the previous day.

The UK's blue-chip index was treading water for most of the session but it made a late push for gains, helped by rising oil stocks despite the European Central Bank's (ECB) decision to hike interest rates.

Lloyds (LLOY.L) recovered to 0.7% after reporting below-forecast third quarter pre-tax profits of £1.5bn ($1.7bn) and increased its bad debt provisions to £668m for the quarter, taking them above £1bn for the year to date.

Shell (SHEL.L) rose 5.5% after the oil major announced plans to increase its dividend in the fourth quarter to 15% as as cooling oil prices failed to take the shine off the energy company's bumper profits.

Unilever (ULVR.L) also gained ground after it raised its sales forecast thanks to higher prices, with investors shrugging off concerns about declining consumer sentiment.

Airtel Africa (AAF.L) was the biggest laggard, dropping 14.7% following its half-year results.

European stocks were down after the European Central Bank raised interest rates by 75 basis points, as expected, taking the deposit rate to 1.5%, and signalled further rate hikes in the months to come.

The central bank said in a statement: "The governing council today decided to raise the three key ECB interest rates by 75 basis points. With this third major policy rate increase in a row, the Governing Council has made substantial progress in withdrawing monetary policy accommodation.

"The governing council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target. Inflation remains far too high and will stay above the target for an extended period. In September, euro area inflation reached 9.9%.

Read more: FTSE 100: Lloyds profits slump as it braces for loan losses

"In recent months, soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand have led to a broadening of price pressures and an increase in inflation."

ECB president Christine Lagarde said economic activity likely slowed significantly in the third quarter and will probably slow further in the months ahead.

Speaking at the ECB press conference, she said: "We expect a further weakening in the remainder of this year and the beginning of next year."

Lagarde warned risks to economic growth were "clearly on the downside" due to the war in Ukraine.

She said energy and food costs could remain persistently higher than expectations and the weakening global economy could also drag.

The hike to 1.5% is the highest in more than a decade. Europe is grappling with surging inflation at a time when the energy crisis threatens to push the bloc into recession.

Neil Wilson at Markets.com said: "ECB hiked by 75bps in line with consensus but less hawkish tone overall, indicative of fewer rate hikes required to tackle inflation. Traders have pared bets, with key rate now seen peaking below 2.75% next year from 3% before. Euro-dollar offered a touch on the release to back below parity but no major move as yet.

"ECB is probably too optimistic — staff projections remain overly positive, though moderation in energy pricing seen as a reason to go slower."

Read more: FTSE 100: Shell profits double to $9.5bn on higher oil and gas prices

On US markets, Wilson said: "Stock futures volatile on the updates, rallying on the updates before erasing gains sharply. Stocks looking more and more volatile to large intraday swings as traders try to knit all these strands together into something cohesive and actionable. Meanwhile tech earnings and Meta (META) are the major drag. Cyclicals doing better so Dow outperforming Nasdaq for now."

Meanwhile, Brent crude (BZ=F) gained 1.5% to trade around $97 per barrel.

In Asia, Tokyo’s Nikkei 225 (^N225) retreated 0.3% to finish at 27,345 while the Hang Seng (^HSI) in Hong Kong gained 0.8% to 15,452. The Shanghai Composite (000001.SS) also closed in the red, falling 0.5% to 2,984 points.

Watch: What is a recession and how do we spot one?