Friday, August 19, 2022
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Markets Recoup Losses as Central Banks Meet

Global markets recouped some of their recent losses on Wednesday, and Wall Street futures pointed to a rise when trading starts, as investors looked ahead to pivotal meetings by economic policymakers trying to rein in inflation without denting economic growth or destabilizing markets.

The main event of the day is the meeting of the Federal Reserve, which is expected to discuss raising its benchmark interest rate by three-quarters of a point, which would be the biggest increase since 1994.

But the European Central Bank unexpectedly got in on the action, calling an unscheduled meeting on Wednesday to discuss market conditions. The borrowing costs of eurozone countries have diverged sharply in recent weeks, leading to so-called fragmentation that Christine Lagarde, the E.C.B. president, said last week the bank would “not tolerate.” At that time, the bank said that it might consider using the reinvestment of proceeds from maturing bonds in its pandemic-era bond-buying program to avoid this fragmentation.

The meeting on Wednesday may be a chance for the bank to state clearly how it plans to prevent excessive borrowing costs as financial conditions tighten across the eurozone, said Holger Schmieding, chief economist at Berenberg Bank.

“Engineering a soft landing for economies battered by external shocks and facing the highest inflation in decades will be as hard as it sounds for all major central banks,” he said in a note. “The extra challenge for the E.C.B. is that its policies affect borrowing costs in 19 economies with different fundamentals.”

Many European stock and bond markets rallied on news of the E.C.B. meeting. The Stoxx 600 index was up 1 percent in early trading and Italian bond prices jumped, lowering yields that had soared recently. The euro gained 0.8 percent against the dollar.

Earlier in the day most Asian markets gained ground, with the Hang Seng in Hong Kong gaining 1.1 percent and the Shanghai Composite in China up 0.5 percent, though the Nikkei in Japan closed 1.1 percent lower.

Stocks on Wall Street tumbled into bear market territory on Monday, a relatively rare event marking a drop of at least 20 percent from their most recent peak. But trading was relatively calm on Tuesday, with the S&P 500 closing 0.4 percent lower, and futures on Wednesday pointed to an upswing at the opening bell.

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