ECB Hikes to 4% as Expected, Market Awaits Trichet's Comments

by: Steven Towns

The European Central Bank [ECB] raised its benchmark interest rate a quarter-point to 4.0%, as widely anticipated -- the highest it has been in nearly six years. More importantly, market participants await comments by ECB president Jean-Claude Trichet. Following the announcement the DAX was down 1.4%, the FTSE 100 -0.9% and the CAC 40 -0.6%, similar to their pre-announcement levels, as indices traded lower across Europe. Global-Central-Bank-Rates-chart-06-06-07 Trichet is expected to signal further hikes are necessary, but there's wide debate as to how much higher. Many economists forecast another hike to 4.25% in 2007. MarketWatch reports Goldman Sachs analysts raised their ECB rate forecast a quarter-point to 4.5% for '07. They do not expect the Federal Reserve to lower rates this year, after previously expecting 0.75% of cuts. A growing number of analysts and fund managers say rising interest rates and thus bond yields are becoming more attractive to investors and competing against equities.

Sources: MarketWatch [I, II, III]
Commentary: Rising Bond Yields (or, The Magazine Cover Indicator Lives!)Implications of the Ongoing Dollar DeclineUN Report: The Dollar's Imminent Collapse is Being Caused by U.S. Debt
Stocks/ETFs to watch: iShares MSCI EMU Index Fund (BATS:EZU), Vanguard European ETF (NYSEARCA:VGK), DJ STOXX 50 ETF (NYSEARCA:FEU), DJ Euro STOXX 50 ETF (NYSEARCA:FEZ) , iShares S&P Europe 350 Index Fund (NYSEARCA:IEV). Currency funds: CurrencyShares Euro Trust (NYSEARCA:FXE), PowerShares DB G10 Currency Harvest (NYSEARCA:DBV). Bond funds: iShares Lehman TIPS Bond (NYSEARCA:TIP), iShares Lehman 1-3 Year Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 Yr Treasury Bond (NYSEARCA:IEF), iShares Lehman 20+ Year Treas Bond (NYSEARCA:TLT)

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