LONDON: Major stock markets diverged Thursday as concerns over further hikes to US interest rates lingered, with officials warning on the need to keep fighting stubbornly-high inflation.
Many indices reversed direction a day after gaining on forecast-busting Chinese data that reinforced optimism the world’s number two economy would bounce back strongly this year as it emerges from its pandemic isolation.
Sentiment soured, however, after Federal Reserve policymakers Raphael Bostic and Neel Kashkari pointed to rates going higher than forecast and for an extended period.
European stock markets rebound at open
The eurozone annual inflation rate meanwhile fell by less than expected to 8.5 percent in February, the EU’s statistics agency said Thursday.
“Stock market investors found no reason to cheer…, which meant that the likes of the (Frankfurt) DAX showed an immediate negative reaction to the numbers,” noted City Index analyst Fawad Razaqzada.
In the United States, Atlanta Fed chief Bostic warned American interest rates could go well above five percent, adding that once inflation had come down to the bank’s two percent target officials should not loosen policy too soon.
“History teaches that if we ease up on inflation before it is thoroughly subdued, it can flare anew,” he wrote. “That happened with disastrous results in the 1970s.”
And Minneapolis boss Kashkari said he was still “open-minded” about backing a 50-basis-point hike at the next policy meeting, double the most recent increase.
“We’re not yet seeing much of a sign of our interest-rate increases slowing down the services sector of the economy and that is concerning to me,” he said.
Talk of more aggressive US rate hikes boosted the dollar Thursday.
There is a growing expectation rates would top out around 5.5 percent, though some commentators are tipping six percent, from the current 4.5-4.75 percent.
The comments came as the yield on 10-year US Treasuries – a proxy for future rates – broke four percent for the first time since November.
Key figures around 1200 GMT
London - FTSE 100: DOWN 0.2 percent at 7,900.15 points
Frankfurt - DAX: DOWN 0.5 percent at 15,234.43
Paris - CAC 40: DOWN 0.1 percent at 7,228.52
EURO STOXX 50: DOWN 0.2 percent at 4,208.77
Tokyo - Nikkei 225: DOWN 0.1 percent at 27,498.87 (close)
Hong Kong - Hang Seng Index: DOWN 0.9 percent at 20,429.46 (close)
Shanghai - Composite: DOWN 0.1 percent at 3,310.65 (close)
New York - Dow: FLAT at 32,661.84 (close)
Euro/dollar: DOWN at $1.0624 from $1.0672 on Wednesday
Pound/dollar: DOWN at $1.1980 from $1.2024
Euro/pound: DOWN at 88.69 pence from 88.71 pence
Dollar/yen: UP at 136.57 from 136.17 yen
Brent North Sea crude: UP 0.6 percent at $84.78 per barrel
West Texas Intermediate: UP 0.6 percent at $78.14 per barrel
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