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European markets traded cautiously at the open on Thursday as Canada’s surprise interest rate rise stoked fears the world’s central banks will push global rates higher for longer than expected.

Europe’s region-wide Stoxx 600 fell 0.1 per cent, following Wall Street lower overnight, as traders were unsettled by the Bank of Canada’s decision on Wednesday to raise its key rate to combat sticky inflation. The bank had paused its rate rising cycle earlier this year and indicated rates were approaching their peak.

France’s Cac 40 lost 0.1 per cent and Germany’s Dax gave up 0.2 per cent.

“Maybe this Bank of Canada move has introduced some sensitivity into the investor mindset . . . if that’s the case, the tape could get bouncy over the next two days,” said Mike Zigmont, head of research and trading at Harvest Volatility.

The surprise rate increase followed a similar move by the Bank of Australia earlier this week, with the trend prompting investors to reassess the chances of further tightening by the US Federal Reserve, due to announce its policy decision next Wednesday. 

The yield on the policy-sensitive two-year note rose 0.04 percentage points to 4.59 per cent, and the yield on 10-year Treasuries increased 0.03 percentage points to 3.81 per cent.

In Britain, the yield on the two-year gilt rose 0.02 percentage points to 4.58 per cent, approaching the peak seen in the aftermath of September’s “mini” Budget. Yields rise when prices fall.

Contracts tracking Wall Street’s benchmark S&P 500 fell 0.1 per cent, while those tracking the tech-heavy Nasdaq 100 were 0.4 per cent lower ahead of the New York open.

Meanwhile, investors expect that official growth figures for the eurozone, released later in the day, will be downgraded to show output slightly contracted for the past two quarters.

The revised reading could weigh on the European Central Bank policymakers, also due to meet next week, who have previously signalled that the economy’s resilience would give them room to raise the deposit rate above its current 3.25 per cent.

Asian equities ticked up, with Hong Kong’s Hang Seng index adding 0.1 per cent and China’s CSI 300 gaining 0.8 per cent. Japan’s Topix bucked the upward trend, falling 0.7 per cent.

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