By Koh Gui Qing
NEW YORK (Reuters) – Jittery global stock markets fell on Thursday as the dollar tumbled, after a drumbeat of hawkish remarks from Federal Reserve officials made it clear that U.S. interest rates could rise. from March, putting an end to ultra-accommodative monetary conditions .
Fed Governor Lael Brainard has become the latest and longest serving US central banker to signal that rates will rise in March to fight inflation, saying the Fed “has planned several rate hikes over the course of the year. ‘year”.
Indeed, data released Thursday that indicated a rapid tightening of U.S. labor market conditions foreshadowed supply bottlenecks and lingering inflationary pressures that could arise, further unsettling investors already wary of rising prices. impending rates.
The MSCI gauge of stocks across the world had lost 0.92% as stocks in Europe and the United States slipped into the red.
After spending much of the day in modest declines, US stocks widened their losses towards the end of the session. The S&P 500 lost 1.4%, the Nasdaq Composite fell 2.5% and the Dow Jones Industrial Average lost 0.5%.
The pan-European STOXX 600 index ended flat as losses in defensive stocks were offset by gains in automakers and technology stocks on hopes of improving semiconductor supply. [.EU]
“We don’t think returns for many financial assets will be as good in 2022 as they were in 2021,” said John Higgins, chief market economist at Capital Economics.
“For starters, we see a sell-off in government bonds in most places, reflecting the outlook for monetary policy. And, in general, we expect disappointing performance in equities, including in the United States and China. “
Data released on Wednesday had shown that consumer price inflation in the United States rose 7% on an annual basis in December, the highest since 1982. While the report was widely expected, it left investors almost certain that US rates would rise in March.
“We think the inflation story will stick around for quite a while,” said Eric Theoret, global macro strategist at Manulife Asset Management.
“We’ve had a tremendous acceleration in Fed tightening,” he added. Theoret pointed out that when the US central bank raised interest rates in 2015, it waited two years before shrinking its balance sheet, while this time it could start by the end of the year.
“The challenge from here is how the global economy responds to this normalization.”
In bond markets, where borrowing costs have accelerated to keep up with expectations of rate hikes this year, 10-year US Treasury yields fell slightly to 1.7006%, although analysts say they are almost certain to climb higher this year amid rising rates. Germany’s 10-year yield hovered near -0.086% after approaching positive yield territory for the first time since May 2019.
European Central Bank Vice President Luis de Guindos was the latest to warn that the current surge in inflation was not going to be as transitory as initially expected. Swiss high-end toiletries giant Geberit had also seen its shares tumble, warning it was now impossible to predict when commodity prices will rise this year.
It’s a busy time for bond issuance as countries and companies look to beat rising rates. Italy was due to sell up to 7 billion euros in bonds at three and seven years later, and Ireland was considering a windfall sale. The week is also expected to be a record high for emerging market corporate debt sales, with nearly 30 sales.
“That’s a record in my time,” said Omotunde Lawal, head of emerging markets corporate debt at Barings. “Most people are overwhelmed, but you can see why with up to four Fed hikes now factored in.” (Graphic: Global Banks, https://fingfx.thomsonreuters.com/gfx/mkt/gdpzykbekvw/cbank%20sheet.JPG)
Doldrums in dollars
In currency markets, the dollar continued to slide to a two-month low against a basket of currencies, with the dollar index falling 0.139% to 94.873.
The Euro was a big beneficiary of the move and held steady at $1.14530, up 0.1% on the day, while the British Pound and Yen also extended their recent gains. [/FRX]
The pound is up more than 4% from December lows and traders have so far shrugged off a political crisis shrouding Prime Minister Boris Johnson, who on Wednesday apologized for attending a party in his official Downing Street residence in May 2020 during a coronavirus lockdown.
New Zealand’s central bank also began raising rates and the New Zealand dollar climbed 0.2% to $0.68625, the highest in nearly two months.
“The (US) dollar doesn’t have to rise because the Fed is preparing for a tightening cycle,” said Commonwealth Bank of Australia strategist Joe Capurso.
“It’s not a simple equation between Fed hikes and dollar hikes. The dollar is a countercyclical currency that declines as the global economy recovers.”
In Asia, Chinese blue chips fell 1.6% after data showing mainland bank lending fell more than expected in December sent the housing and consumer sectors sinking.
MSCI’s broadest index of Asia-Pacific stocks outside Japan was flat after posting its biggest daily gain in a month on Wednesday. The Japanese Nikkei lost nearly 1% after jumping nearly 2% the previous day.
Oil prices also fell in commodity markets, a day after hitting their highest level in nearly two months. [O/R]
U.S. crude fell 1.36% to $81.52 a barrel and Brent to $83.86, down 0.96% on the day.
A weaker dollar did not support bullion prices, which were instead weighed down by the prospect of higher rates. Spot gold fell 0.2% to $1,822.08 an ounce. US gold futures fell 0.65% to $1,821.20 an ounce. [GOL/]
(Additional reporting by Tommy Wilkes in London and Andrew Galbraith in Shanghai; Editing by Tomasz Janowski, Toby Chopra, Jonathan Oatis and Alexandra Hudson)
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