Global stocks rattled by Fed rate hike plans

·4-min read
Investors have been waiting for months to see if the Federal Reserve will raise interest rates sooner than expected (AFP/Daniel SLIM) (Daniel SLIM)

Global stocks mostly sank Thursday after the US Federal Reserve signalled it was ready to hike interest rates sooner than expected to combat spiking inflation.

The dollar held steady as traders digested the Fed news, while oil prices continued to climb on easing supply constraints from OPEC+ crude producers.

Minutes from the Fed's latest monetary policy meeting showed that officials were confident the world's top economy was in good shape and able to absorb high borrowing costs, despite concerns over the fast-spreading Omicron coronavirus variant.

"The Federal Reserve continues to wield considerable power over global markets and its latest comments are not what investors want to hear," said AJ Bell investment director Russ Mould.

"Minutes... implied that a tight jobs market and ongoing inflation could result in a more aggressive change in monetary policy with interest rates going up sooner than expected."

The latest US unemployment data showed a small tick higher in first-time jobless claims last week, but at 207,000 remained relatively low.

"The key takeaway is that the latest data didn't disrupt the idea that the labour market is tight and that initial claims are running at pre-pandemic levels, which at the time were thought to be quite low," said Patrick O'Hare at Briefing.com.

- 'Markets spooked' -

The prospect of rising interest rates in the world's biggest economy tends to weigh on global share prices because it increases company borrowing costs and curbs consumer incomes.

CMC Markets analyst Michael Hewson said "markets appear to have been spooked by the prospect that the Fed could well start to normalise policy at a faster rate than had originally been priced in for this year,

The Federal Open Market Committee has already started winding back the vast bond-buying stimulus put in place at the start of the pandemic as inflation remains stubbornly high, with the programme due to end in March.

Traders had previously expected the bank to then start lifting rates.

Now officials are ready to act, with the Fed minutes saying: "It may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated."

Hewson said investors also appeared to spooked about indications the Fed is already beginning to think about reducing the massive amount of bonds it holds.

The move away from massive central bank support around the world has rattled markets in recent months -- having notched up a series of records or multi-year highs on the cheap cash.

With the punch bowl being taken away, traders are in retreat, particularly those invested in tech firms, which are more susceptible to higher interest rates owing to their reliance on borrowing to fuel growth.

The tech-heavy Nasdaq plunged more than three percent Wednesday, leading losses on Wall Street. All three main US indices opened modestly lower on Thursday, but both the S&P 500 and the Nasdaq were showing small gains in late morning trading as bargain hunters moved in.

Asia tracked Wednesday's move lower on Wall Street, and Europe's main indices ended down.

Elsewhere, bitcoin briefly dropped to a one-month low at $42,506, well down from the record near $69,000 seen in November.

- Key figures around 1630 GMT -

New York - DOW: DOWN 0.4 percent at 36,278.76 points

EURO STOXX 50: DOWN 1.6 percent at 4,323.90

London - FTSE 100: DOWN 0.9 percent at 7,450.37 (close)

Frankfurt - DAX: DOWN 1.4 percent at 16,052.03 (close)

Paris - CAC 40: DOWN 1.7 percent at 7,249.66 (close)

Tokyo - Nikkei 225: DOWN 2.9 percent at 28,487.87 (close)

Hong Kong - Hang Seng Index: UP 0.7 percent at 23,072.86 (close)

Shanghai - Composite: DOWN 0.3 percent at 3,586.08 (close)

Euro/dollar: DOWN at $1.1302 from $1.1317 late Wednesday

Pound/dollar: DOWN at $1.3536 from $1.3557

Euro/pound: UP at 83.51 pence from 83.46

Dollar/yen: DOWN at 115.77 yen from 116.06 yen

Brent North Sea crude: UP 1.6 percent at $82.36 per barrel

West Texas Intermediate: UP 2.5 percent at $79.81

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