Blog Post

The ECB Says Farewell to Negative Interest Rates and Earnings Drive Stock Prices

Stock prices were moved mainly by 2nd quarter earnings.  Most major stocks indices ended with modest gains, with only emerging markets ending down.  

The European Central Bank hiked short term interest rates for the first time since 2011.  The ECB’s key short term interest rate went from -0.5% to 0.00%.  The Euro currency rose 0.7% against the dollar on the news.  The ECB did not forecast future increases but said they would be decided at each meeting with the goal of attaining a more normal level of interest rates.  The ECB also unveiled the Transmission Protection Instrument, which “can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area,”.  The concern is that some European Union countries sovereign bonds may be more affected than others and the ECB will buy or sell them to prevent harm to some countries.

Japan’s Central Bank met and chose to leave monetary policy unchanged with short term interest rates at -0.1% and the 10 year treasury note at 0.25%.  The JCB forecasts inflation of only 2.3% in 2022, falling to 1.4% in 2023.  The Yen has weakened dramatically against the U.S. Dollar, to about 136 Yen to the Dollar.

Treasury yields fell with the 30-year bond yield at 2.974% and the 10-Year note at 2.760%.  Mortgage rates fell slightly with the 30-year mortgage rate ending at 5.91%.  U.S. crude oil fell to $94.85 a barrel and natural gas rose to $8.20 per MMBTUs.  The U.S. dollar index fell to 106.58.  Gold rose to $1724.20 an ounce.

In the economic numbers:

  • The U.K. has reported that inflation hit 9.4% in June from a year ago.
  • The National Association of Realtors reported that existing home sales fell 5.4% in June, the fifth straight month of declines.  It was the slowest level of sales in two years.
    • The median sales price of existing homes rose to $416,000 in June, up 13.4% from a year ago.
  • The  Commerce Department reported:
    • Housing starts fell 2% in June and are the lowest since September.
      • Single-family housing starts fell 8.1% to the lowest in two years.
      • Multi-family starts rose 10%.
    • Building permits, a measure of future housing starts fell 0.6% to a level that also is the lowest since September.
  • The Labor Department reported:
    • Seasonally adjusted first time claims for unemployment rose to 251,000, up from a revised 244,000 in the prior week. 
    • The 4-week moving average of claims, designed to smooth out volatility, rose to 240,500.
    • For the full unemployment report go here: .
  • The EIA weekly oil report is here: .  Also, the EIA reported in the prior week:
    • Field production of crude oil fell from 12.0MM BPD to 11.9MM BPD.
    • Natural gas storage rose 32BN cubic feet and is below the 5-year average at this time of year.
  • Baker Hughes reported the number of active oil rigs was unchanged at 599.  The number of active natural gas rigs rose 2 to 155.
  • Factset reported that with 21% of S&P 500 companies reporting 2nd quarter earnings, the blended earnings increase is 4.8%.

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Loren C. Rex, CFP®, MA                                                                     Erik A Smith, AIF®

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 These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.  The Indices mentioned are unmanaged and cannot be invested into directly.


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