Stock markets around the world fell on Thursday as the dollar rallied after the Federal Reserve warned that U.S. interest rates would go higher than expected in its fight against decades-high inflation.
Meanwhile, the Bank of England has warned that Britain faces a recession that is expected to last until mid-2024.
The Fed on Wednesday unveiled a fourth consecutive hike of 0.75 percentage points as expected – the sixth hike this year to cool runaway prices.
The dollar rose sharply against the pound although the Bank of England also recorded a 0.75 percentage point rise on Thursday – the biggest in 33 years – to 3.0%, the highest rate since 2008.
The pound fell 2% against the dollar in afternoon trading before recovering some of its losses, helping London’s FTSE 100 stock index to reverse the trend and rise by 0 .6%. The index is loaded with multinational companies that make most of their revenue in dollars and show higher profits in pounds when the British pound exchange rate is low.
European Central Bank President Christine Lagarde announced further interest rate hikes on Thursday, saying a “mild” eurozone recession was looming but would not be enough to bring down record inflation.
Oil prices also fell sharply on Thursday as aggressive rate hikes raise expectations of a global recession and weaker energy demand.
Hong Kong led the stock market losses as the city’s central bank hiked rates in line with the Fed, due to their political tie via the dollar peg.
Traders returned some of the gains from the previous two days, which came on the back of speculation that China was planning to reverse some of its painful zero-Covid policies.
Along with the sale, the Beijing health authority has confirmed that it intends to stick with the strategy.
– ‘Some ways to go’ –
“Stocks fell … after the Federal Reserve raised benchmark interest rates and warned it still had some way to go in its efforts to tame inflation,” Chief Investment Officer Mark Haefele said. at UBS Global Wealth Management.
Prior to the Fed’s announcement, stocks had rebounded for more than a week on speculation that the US central bank would signal that its rate tightening could soon peak as the world’s largest economy showed signs of weakening. slow-down.
Still, Fed Chief Jerome Powell threw cold water on hopes of a policy “pivot”, telling a press conference “incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than expected”.
Briefing.com analyst Patrick O’Hare told investors that “the point that was recorded was (Powell’s) view that it’s very premature to talk about pausing rate hikes.”
Another key point was that “the Fed still has some way to go to bring the policy rate down to a restrictive level sufficient to bring inflation back to the 2.0% target,” O’Hare noted.
Additionally, Powell indicated “that the Fed’s terminal rate is likely to be higher than expected and will likely be held there longer than expected,” upending earlier market expectations.
Investors now expect Fed rates to rise above 5%, down from 4% previously.
The latest US data did not help sentiment, with a key survey showing the services sector grew less than expected in October as new orders fell and businesses struggled to replenish inventories.
Global stocks have fallen this year on growing fears that rising borrowing costs will reduce consumer and business spending, triggering a global recession.
– Key figures around 3:30 p.m. GMT –
New York – Dow: DROP of less than 0.1% to 32,126.58 points
EURO STOXX 50: DOWN 0.8% to 3,593.18
London – FTSE 100: UP 0.6% to 7,188.63 (closing)
Frankfurt – DAX: 1.0% lower at 13,130.19 (closing)
Paris – CAC 40: DOWN 0.5% to 6,243.28 (closing)
Hong Kong – Hang Seng Index: DOWN 3.1% to 15,339.49 (closing)
Shanghai – Composite: 0.2% lower at 2,997.81 (close)
Tokyo – Nikkei 225: Closed for holidays
Pound/dollar: DOWN to $1.1180 from $1.1390 on Wednesday
Euro/dollar: DOWN at $0.9754 against $0.9816
Dollar/yen: UP to 148.25 yen from 147.90 yen
Euro/pound: UP at 87.20 pence against 86.17 pence
North Sea Brent Crude: DOWN 0.9% to $95.26 a barrel
West Texas Intermediate: 1.4% drop to $88.72 a barrel
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