LONDON: Asian and European stock markets sank and the dollar rallied Thursday after the Federal Reserve warned US interest rates would go higher than previously expected in its fight against decades-high inflation.
The Fed on Wednesday unveiled a fourth straight 0.75-percentage-point increase as expected – the sixth hike this year to cool rampant prices.
The dollar on Thursday rose strongly against main rival including the pound and as the Bank of England was set to deliver its own bumper interest-rate hike in a decision due at 1200 GMT.
The BoE is tipped to lift its key rate by 0.75 percentage points to three percent – the most in 33 years and putting British borrowing costs at the highest level since 2008.
Norway’s central bank raised its policy rate for a fourth consecutive time, with a quarter-point increase that took it to its highest level since 2009 at 2.5 percent.
Oil prices also fell heavily on Thursday as aggressive rate hikes increase expectations of a global recession.
Hong Kong led stock market losses as the city’s central bank hiked rates in line with the Fed, owing to their policy link via the dollar peg.
Traders gave back a chunk of the previous two days’ gains, which came on the back of speculation China was planning to roll back some of its painful zero-Covid policies.
Adding to the selling was confirmation from Beijing’s health authority that it intended to stick to the strategy.
‘Some way to go’
“Stocks fell… after the Federal Reserve raised benchmark interest rates and warned that there was still some ways to go in its efforts to tame inflation,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Before the Fed announcement, stocks had rallied for more than a week on speculation the US central bank would indicate that its rate tightening could soon reach a peak as the world’s biggest economy showed signs of slowing.
Yet Powell poured cold water on those hopes, telling a news conference that “incoming data since our last meeting suggests that ultimate level of interest rates will be higher than previously expected”.
He added that “we still have some ways” until borrowing costs were at the necessary level and that it “is very premature to be thinking about pausing”.
Investors now expect Fed rates to top out at more than five percent, compared with four percent previously.
Stocks slide before expected Fed hike
Global equities have slumped this year on mounting fears that rising borrowing costs will curtail consumer and business spending and spark a global recession.
“The Federal Reserve… didn’t offer any real crumbs of comfort for traders or indeed the global economy when it came to how rapidly the now relentless – and potentially damaging – run of rate hikes may conclude,” said Scope Markets analyst James Hughes.
Key figures around 1030 GMT
London - FTSE 100: DOWN 0.4 percent at 7,113.98 points
Frankfurt - DAX: DOWN 0.8 percent at 13,156.90
Paris - CAC 40: DOWN 0.6 percent at 6,238.31
EURO STOXX 50: DOWN 0.8 percent at 3,593.41
Hong Kong - Hang Seng Index: DOWN 3.1 percent at 15,339.49 (close)
Shanghai - Composite: DOWN 0.2 percent at 2,997.81 (close)
Tokyo - Nikkei 225: Closed for a holiday
New York - Dow: DOWN 1.6 percent at 32,147.76 (close)
Pound/dollar: DOWN at $1.1258 from $1.1390 Wednesday
Euro/dollar: DOWN at $0.9754 from $0.9816
Dollar/yen: UP at 148.16 yen from 147.90 yen
Euro/pound: UP at 86.64 pence from 86.17 pence
Brent North Sea crude: DOWN 1.4 percent at $94.80 per barrel
West Texas Intermediate: DOWN 1.8 percent at $88.40 per barrel
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