LONDON: Global equities sank Wednesday on bets the Federal Reserve will act more aggressively to bring inflation under control, while oil prices rebounded.
Asian and European bourses retreated after heavy falls on Wall Street Tuesday.
The euro hit a one-month dollar low before minutes from the Fed’s latest policy meeting due Wednesday.
London stocks slid also as UK businesses and individuals saw a major tax hike kick in, worsening Britain’s cost-of-living crisis as domestic energy bills rocket.
Minutes from the Fed’s March meeting will be pored over for insights into the thinking of US central bankers, in light of the Ukraine war and recent data suggesting the world’s top economy remains resilient.
– ‘Significant headwinds’ –
“Investor confidence might have improved from the low point in early March when the Ukraine war was unfolding,” said AJ Bell investment director Russ Mould.
“However, there remain significant headwinds for equities and the latest trouble spot is what the Federal Reserve might do to curb inflation.”
Investors are fretting also over how quickly officials will withdraw their vast pandemic-era financial support.
After last month’s 0.25-percentage-point hike in US interest rates, the focus is now on its plans for May’s meeting, with expectations growing that the Fed will announce a 0.50-point lift followed by several more before the end of the year.
Fed governor Lael Brainard, who is considered a dove, on Tuesday spooked traders by saying bringing US inflation down from 40-year highs was of “paramount importance” and that the bank was “prepared to take stronger action” if warranted.
Brainard also said bank policymakers were ready to start reducing its vast bond holdings, which have helped keep borrowing costs down.
“Brainard’s hawkish comments rocked the markets,” said Swissquote analyst Ipek Ozkardeskaya.
“In this tense environment, investors will be closely watching the Fed minutes today. There would be no surprise if the Fed hinted a 50-basis-point hike (for) the next meeting,” she noted.
All three main indices on Wall Street ended Tuesday in the red, with the Nasdaq off more than two percent owing to tech firms being more susceptible to higher rates.
– Oil rebounds –
Oil prices rebounded on Wednesday, after European Council chief Charles Michel told the European Parliament that it must impose oil and gas sanctions on Russia “sooner or later”.
Crude futures had slid the previous day on the European Union’s decision not to include Russian oil in a fresh round of sanctions.
Adding to downward pressure on crude is a strong dollar thanks to the prospect of a series of US interest rate hikes.
Oil is priced in dollars, making it more expensive for clients using other currencies.
– Key figures around 1030 GMT –
London – FTSE 100: DOWN 0.5 percent at 7,577.10 points
Frankfurt – DAX: DOWN 1.3 percent at 14,230.52
Paris – CAC 40: DOWN 1.2 percent at 6,564.72
EURO STOXX 50: DOWN 1.5 percent at 3,858.21
Tokyo – Nikkei 225: DOWN 1.9 percent at 27,080.52 (close)
Hong Kong – Hang Seng Index: DOWN 1.3 percent at 22,219.85 (close)
Shanghai – Composite: FLAT at 3,283.43 (close)
New York – Dow: DOWN 0.8 percent at 34,641.18 (close)
Brent North Sea crude: UP 1.5 percent at $108.24 per barrel
West Texas Intermediate: UP 1.8 percent at $103.78 per barrel
Euro/dollar: DOWN at $1.0903 from $1.0905 late Tuesday
Pound/dollar: UP at $1.3080 from $1.3074
Euro/pound: DOWN at 83.37 pence from 83.41 pence
Dollar/yen: UP at 123.96 yen from 123.60 yen
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