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Banks keep European shares afloat

September 21, 2022

Banks keep European shares afloat
European shares edged higher on Tuesday, boosted by banks, while expectations of another large interest rate hike by the U.S. Federal Reserve kept risk-taking bets in check.

The pan-European STOXX 600 index added 0.1%, after a soft start to the week, with banks climbing 1.6% by 0759 GMT as lenders tend to benefit from a high interest rate environment.

The U.S. central bank will likely deliver its third straight super-sized 75 basis point interest rate hike on Wednesday, toughening its stance on persistent inflation.

Swedish stocks fell 0.5% after the Riksbank hiked interest rates by a full percentage point to 1.75% in a surprise move and warned that more was to come as it sought to get to grips with surging inflation.

Markets will also be watching the Bank of England’s policy decision, split on whether it will hike by 50 or 75 bps on Thursday.

“It’s all about central banks this week and it looks like the traders are actually pricing in both the Fed’s rate hike and the interest rate hike  from the Bank of England,” said Erik-Jan van Harn, macro strategist at RaboResearch.

The European Central Bank had earlier in the month raised its lending rate by 75 bps, which has helped the banks outperform every other sector with gains of over 7% so far in September.

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