Global markets suffering after Fed’s rate hike forecast
Global equity markets were mostly lower on Thursday after the Federal Reserve indicated it could ease economic stimuli earlier than previously thought.
London and Frankfurt opened lower while Tokyo, Seoul and Sydney fell. Shanghai and Hong Kong advanced.
U.S. futures were lower after Fed members estimated on Wednesday that their key rate would rise twice by the end of 2023, earlier than a previous forecast that no rate hikes would be made before 2024. The Fed said that the U.S. economy is improving faster than expected.
The extremely low-interest rates from the Fed and other central banks have sparked a rebound in global equity markets after falling last year amid the coronavirus pandemic.
“The Fed may have sent a more aggressive message to the markets than many expected,” I.G.’s Yeap Jun Rong said in a report. Still, Yeap said, divergent views among board members suggested that “a lot will depend on how the economic recovery plays out”.
Stocks after Fed’s meeting
In early trading, the FTSE 100 in London lost 0.3% to 7,165.60, and the Frankfurt DAX lost less than 0.1% to 15,699.25. The CAC 40 in Paris was down 0.1% to 6,645.49.
On Wall Street, futures on the benchmark index S&P 500 and the Dow Jones Industrial Average fell 0.3%.
The S&P 500 index dropped 0.5% on Wednesday after Fed projections showed that some of its board members expect short-term rates to rise by half a percentage point by the end of 2023.
The Dow was down 0.8%, and the Nasdaq Composite was down 0.2%.
In Asia, the Nikkei 225 in Tokyo lost 0.9% to 29,018.33, while the Shanghai Composite Index rose 0.2% to 3,525.60. Hong Kong’s Hang Seng rose 0.4% to 28,558.59.
The Hong Kong Stock Exchange was experiencing technical issues as a wave of internet outages hit financial institutions, airlines, and other businesses worldwide. However, the exchange later said their websites were back to normal.
The Kospi in Seoul fell 0.4% to 3,264.96 and the Indian Sensex lost 0.2% to 52,375.76.
The Australian S&P ASX 200 fell 0.4% to 7,359.00 after the government reported a 115,200 increase in employment in May, an 8.1% increase from its low a year ago.
New Zealand, Singapore and Jakarta gave way while Bangkok advanced.
Fed’s optimism
The Fed’s announcement on Wednesday reflected growing confidence in the U.S. economy as more people are vaccinated against the coronavirus and business picks up again.
Investors have feared that the Fed and other central banks may face pressure to withdraw incentives to cool rising inflation. However, Fed officials said they believe inflation will be short-lived, an attitude they repeated on Wednesday.
Fed chief Jerome Powell said conditions had improved enough to discuss when to slow bond purchases. The Fed buys $120 billion a month to pump money into the financial markets and keep longer-term interest rates low.
Impact on other markets
The yields on 10-year government bonds climbed from 1.50% on late Tuesday to 1.55%. The two-year return, which is more in line with expectations for Fed policy, rose from 0.16% to 0.20%.
The U.S. crude oil benchmark lost 27 cents to $ 71.89 in electronic trading on the NYMEX in the energy markets. The contract dropped to $70.60 on Thursday. Brent crude also lost 26 cents in London to $ 74.13 a barrel. In the previous session, it was up 40 cents to $ 74.39. The dollar rose to 110.63 Japanese yen on Wednesday. The euro fell from $ 1.2016 to $ 1.1900 handle.
« Top 3 problems of forex traders Importance of Support and Resistance Levels in Trading »
