23.6 C
Wednesday, May 18, 2022

Fed signals trigger world stocks, bonds sell-off – Reuters

Must read

Passersby wearing protective face masks are seen in front of an electronic board showing Japan’s Nikkei share average, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan November 1, 2021. REUTERS/Issei Kato
SHANGHAI, Jan 6 (Reuters) – Stock markets were deep in the red and some key government bond yields climbed to their highest in years on Thursday after the Federal Reserve signalled the possibility of faster-than-expected U.S. rate hikes and stimulus withdrawal.
Both Asia and Europe's bourses fell heavily after Wall Street's tech-heavy Nasdaq plunged more than 3% on Wednesday and 2- and 5-year Treasury yields, important drivers of global borrowing costs, surged to post-COVID pandemic highs.
Minutes from the Fed's December meeting had shown that a tight jobs market and unrelenting inflation could require the U.S. central bank to raise rates sooner than expected and begin reducing its overall asset holdings – a process known as quantitative tightening (QT).
Early European trading saw the STOXX 600 share index lose 1.3%, erasing all of its gains for the year that had sent it to record highs.
Asia has seen sharp falls too [.T][.SS]. Australian shares slid 2.7% in their biggest daily percentage drop since early September 2020, and Japan's Nikkei fell 2.9%, its biggest daily fall since June.
"Some people are quite spooked by the minutes from the Fed that they could be tightening faster," said Carlos de Sousa, an emerging markets strategist and portfolio manager at Vontobel Asset Management.
"Maybe the market is overreacting a bit, though. The fact they are discussing this (quantitative tightening) doesn't mean they are going to do it," he said, adding that he expected 1-3 rate hikes in 2022 but would be surprised if QT did happen this year.
The minutes showed that Fed officials were uniformly concerned about the pace of inflation, which promised to persist, alongside global supply bottlenecks, "well into" 2022.
The Nasdaq's 3% drop on Wednesday was its biggest one-day percentage decline since last February and the S&P 500 fell the most since Nov. 26, when news of the Omicron variant first hit global markets.
"There is a risk that the Fed might fall into the trap of making policy errors because they do have to perhaps hike interest rates faster than expected, but given the timing of their exit from quantitative easing, it could coincide with a slowdown in the economic cycle and also a decline in inflation on base effects," said Casanova.
European trading saw U.S. Treasury yields continue to push higher across the curve. The U.S. 10-year yield hit its highest level since April 2021 on Thursday above 1.73% and was last at 1.732%, from a close of 1.703% on Wednesday.
The policy-sensitive U.S. 2-year yield hit a new 22-month top of 0.863% while the 5-year yield hit highs last seen in February 2020 at 1.459%.
In Europe too, 10-year Germany Bund yields, which rolled over into a new benchmark, rose to -0.05%, the highest level since May 2019, Refinitiv data showed.
Analysts said that while the rollover into a new contract made the move in Bund yields appear large, even if measured on a continuous basis, yields were at new multi-month highs.
Higher U.S. yields continued to support a firm dollar, though the currency gave back some ground against the yen after touching five-year highs earlier this week, falling 0.21% to 115.86.
The euro weakened 0.05% to $1.1307 while the dollar index crept up by the same margin to 96.228.
In commodity markets, global benchmark Brent crude steadied at $79.14 per barrel and U.S. crude dipped to $80.08 a barrel after OPEC+ producers agreed to boost production and on a surge in U.S. stockpiles.
Spot gold was down 0.8% at $1,794 per ounce, with higher U.S. bond yields dulling the lustre of the precious metal. [GOL/]
Our Standards: The Thomson Reuters Trust Principles.
Sign up to our investor newsletter to get the latest news and trends in global financial markets.
Subscribe to our newsletter to get all the news you need to start your day.
Reuters, the news and media division of Thomson Reuters, is the world’s largest multimedia news provider, reaching billions of people worldwide every day. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers.
Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology.
The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs.
The industry leader for online information for tax, accounting and finance professionals.
Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile.
Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts.
Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks.
All quotes delayed a minimum of 15 minutes. See here for a complete list of exchanges and delays.
© 2022 Reuters. All rights reserved


More articles


Please enter your comment!
Please enter your name here

Latest article