Global stocks follow Wall Street pullback on interest rate concerns
Global stocks were mixed on Thursday after a retreat on Wall Street boosted by comments that the Federal Reserve intends to fight inflation more aggressively.
Benchmarks rose in Paris and Frankfurt after declines in most Asian markets. US futures fell as oil prices were higher.
The Fed’s comments added to investor unease over the war in Ukraine, coronavirus outbreaks in China and persistently high inflation.
Minutes from the Fed’s meeting last month showed policymakers agreed to start cutting the Fed’s stock of Treasuries and mortgage-backed securities by about $95 billion a month, from May. That’s more than some investors expected and nearly double the pace the last time the Fed shrunk its balance sheet.
European stocks faltered after the open, with the CAC 40 in Paris up 0.2% at 6,508.50 and the German DAX down 0.1% at 14,141.12. The FTSE 100 in London fell 0.3% to 7,554.73.
On Wall Street, the future of the S&P 500 was virtually unchanged. The Dow Jones Industrial Average future was 0.1% lower.
The S&P 500 fell 1% on Wednesday, while the Dow Jones lost 0.4%. The tech-heavy Nasdaq lost 2.2%.
In Asian trading, Tokyo’s Nikkei 225 lost 1.7% to 26,888.57 while the Hang Seng in Hong Kong slipped 1.2% to 21,808.98. The Shanghai Composite Index fell 1.4% to 3,236.70. South Korea’s Kospi fell 1.4% to 2,695.86 and Australia’s S&P/ASX 200 fell 0.6% to 7,442.80.
Chinese markets fell despite reports from state media that Premier Li Keqiang, the country’s top economic official, has promised to support the economy as it battles its worst coronavirus outbreaks to date. .
Li told a meeting of the State Council, or Cabinet, that monetary policy would be used to effectively support the real economy,” Xinhua reported.
The State Council agreed to defer required payments of pension insurance premiums on a time-limited basis for industries facing particular difficulties,” and to channel unemployment insurance funds to help businesses keep people on the payroll, he said.
As China faces slowing growth, the US central bank is working to rein in inflation by reversing low interest rates and the extraordinary support it began providing the economy a while ago. two years when the pandemic plunged the economy into a recession.
A faster reduction in the Fed’s balance sheet would help push up longer-term rates, but also increase borrowing costs for consumers and businesses.
At its March meeting, the Fed raised its benchmark short-term rate by a quarter of a percentage point, the first hike in three years. The minutes showed that many Fed officials wanted to raise rates by an even bigger margin last month, and they still saw one or more of those potentially oversized increases coming in future meetings.
Higher rates tend to lower the price-earnings ratio of stocks, a key valuation barometer. Such a scenario can particularly hurt stocks considered to be the most expensive, including big tech companies.
Early Thursday, the yield on the 10-year US Treasury, which is used to set interest rates for mortgages and many other types of loans, was 2.57%. It is at the highest level for three years.
Traders are now pricing in a nearly 77% chance that the Fed will raise its key interest rate by half a percentage point at its next meeting in May. That’s double the usual amount and something the Fed hasn’t done since 2000.
Inflation is at its highest level in four decades and threatens to dampen economic growth. Rising prices for everything from food to clothes have raised fears that consumers may end up cutting back on spending. Russia’s invasion of Ukraine has pushed up the prices of energy and raw materials such as wheat and nickel.
Western governments have tightened sanctions against Russia following evidence that its soldiers deliberately killed civilians in Ukraine. But European governments have resisted calls to boycott Russian gas, Putin’s main export source, because of the possible impact on their economies.
Benchmark crude oil prices in the United States fell 5.6% on Wednesday, but are more than 30% higher this year. This pushed gasoline prices higher, putting more stress on shipping costs, commodity prices and consumer wallets.
On Thursday, benchmark U.S. crude gained 30 cents to $96.53 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the standard for international prices, rose 27 cents to $101.34 a barrel.
The dollar fell to 123.77 Japanese yen from 123.81 yen. The euro fell to $1.0882 from $1.0985.
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