European and Asian stocks fall after Jay Powell signals a recent rise in interest rates

Stock markets fell sharply in Europe and Asia after Federal Reserve Chairman Jay Powell signaled that the US Federal Reserve would start raising interest rates from the lowest levels since the crisis in March.

After falling overnight on Wall Street, the European regional stock index Stoxx 600 opened 1.3% lower. The UK’s FTSE 100 fell 1%, while there were significant declines in Asia-Pacific markets. Hong Kong’s Hang Seng index fell 2.1 percent, with high-value technology stocks taking the brunt of sales in Europe and Asia.

This sentiment was reflected across the Atlantic, with US stocks declining further as futures for the benchmark S&P 500 fell 0.9%.

The US Federal Reserve said on Wednesday it would start raising interest rates at its next policy meeting in March. President Jay Powell declined to rule out successive interest rate hikes later this year, saying raising interest rates “will be appropriate soon” and adding that there was “enough room” to tighten monetary policy without hurting the labor market. .

“Global markets are now more sensitive to central bank policy than the latest news [corporate] profits, macroeconomic data or the coronavirus, ”said Valentin van Neuvenhousen, chief investment officer at NN Investment Partners.

“We have seen a significant adjustment in risk appetite in recent weeks,” he added as traders prepare for the first cycle of interest rate hikes in 2018.

JPMorgan’s strategists now expect the world’s most influential central bank to raise its key fund interest rate from close to zero to around 0.65% by June and 1.13% by the end of this year. On Thursday morning, futures markets also raised previous bets on the number of interest rate hikes this year from about four to about five, according to Bloomberg.

Cumulative tightening bar chart, calculated in overnight index swaps by meeting (bps), showing market price in the more hawk Federal Reserve

Stock markets have changed dramatically in recent weeks. The S&P 500 lost about 9% of its value in January, with speculative technology stocks hit particularly hard. Higher interest rates not only threaten corporate profits by raising borrowing costs. They also lower the present value of companies’ projected profits in investor models, an effect that increases for companies whose peak profits are not expected until years later.

On the debt markets on Thursday, the yield on the benchmark 10-year government securities, which is moving back in price, fell 0.01 percentage points to 1.83% after a sharp rise overnight. Powell warned on Wednesday night that the outlook for inflation in the United States, which peaked at nearly 40 in the year to December, has worsened. Prospects for sustainable inflation reduce the attractiveness of fixed income securities, such as government bonds.

Rising uncertainty over tensions between Russia and Ukraine also contributed to rising oil prices, which were hovering near multi-year highs on Wednesday.

Brent crude oil, global oil, fell 0.4 percent to $ 89.6.

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