European stocks slip as traders look ahead to interest rate decisions

European stocks slipped at the open on Friday as traders were cautious ahead of the policy meetings of key central banks next week, while the Turkish lira hit a fresh low after the appointment of new central bank governor.

Europe’s region-wide Stoxx 600 shed 0.1 per cent while France’s Cac 40 fell 0.2 per cent. London’s FTSE 100 and Germany’s Dax both traded flat.

The moves came a day after Wall Street’s benchmark S&P 500 closed 0.6 per cent higher, lifting the blue-chip stock index into bull market territory, defined as a rise of 20 per cent or more from the most recent low, which was hit last October. The tech-heavy Nasdaq Composite added 1 per cent.

As an indication of the calm spreading across markets, the Vix volatility index closed at its lowest level since the onset of the panic over the coronavirus pandemic three years ago. The benchmark is a measure of expected swings in the S&P over the coming month.

In Turkey the lira extended its fall to record lows, down 1.6 per cent to 23.54 against the dollar, after president Recep Tayyip Erdoğan appointed former US banker Hafize Gaye Erkan to lead the country’s central bank. 

The move came just days after Erdoğan picked Mehmet Şimşek, a former deputy prime minister and investor favourite, as finance minister, adding to signs that Turkey’s president may be changing course on his unorthodox policies. 

Traders will also hope for signals on the future moves in interest rates from the European Central Bank when its vice-president, Luis de Guindos, gives a speech later on Friday. The ECB meets to set its policy next week.

Markets overwhelmingly expect that policymakers will raise the ECB’s deposit rate by 0.25 percentage points, above its current level of 3.25 per cent, when they meet next Thursday.

Across the Atlantic, the majority of investors bet that the Federal Reserve would refrain from raising rates this month, especially after data on Thursday pointed to a cooling labour market.

Yet the yield on the two-year Treasury note, which is sensitive to rate expectations, rose 0.03 percentage points to 4.55 per cent. The yield on the 10-year note was up 0.03 percentage points at 3.74 per cent. Bond yields rise as prices fall.

US futures were down, with contracts tracking Wall Street’s benchmark S&P 500 falling 0.3 per cent while those tracking the tech-heavy Nasdaq 100 gave up 0.2 per cent ahead of the New York open. 

Asian equities rallied, with Hong Kong’s Hang Seng index gaining 0.5 per cent, while China’s CSI 300 advanced 0.4 per cent. 

Data on Friday showed that China’s consumer price inflation remained close to zero in May, in a further sign of sluggish demand across the world’s second-largest economy coming out of a prolonged pandemic shutdown.