Global equities sank Wednesday on bets the US Federal Reserve will act more aggressively to bring inflation under control.
Asian and European bourses retreated, and Wall Street was also trading lower, extending heavy falls in US stocks a day earlier.
The euro hit a one-month dollar low ahead of the release due Wednesday of the minutes from the Fed’s latest policy meeting.
The 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.
“The markets remain unnerved by the economic implications of a highly aggressive Fed and a potential policy mistake,” analysts from Charles Schwab said in a note.
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.
– ‘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.
“It’s an ugly affair right now, because the increased chatter from Fed officials about perhaps needing to be more aggressive with the policy stance shows that the Fed is recognising it is behind the inflation curve and now risks making a policy mistake trying to catch up,” said Patrick O’Hare from Briefing.com.
– Oil rebounds –
Oil prices dropped after rebounding earlier when 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.
Britain slapped new sanctions on Russia Wednesday over its invasion of Ukraine, targeting two banks and eliminating all Russian oil and coal imports by the end of the year.
The White House also announced sanctions targeting Russia’s top public and private banks and two daughters of President Vladimir Putin.
– Key figures around 1605 GMT –
London – FTSE 100: DOWN 0.3 percent at 7,587.70 points (close)
Frankfurt – DAX: DOWN 1.9 percent at 14,151.69 (close)
Paris – CAC 40: DOWN 2.2 percent at 6,498.83 (close)
EURO STOXX 50: DOWN 2.4 percent at 3,824.69
New York – Dow: DOWN 0.6 percent at 34,434.41
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)
Brent North Sea crude: DOWN 2.6 percent at $103.86 per barrel
West Texas Intermediate: DOWN 2.8 percent at $99.11 per barrel
Euro/dollar: UP at $1.0913 from $1.0905 late Tuesday
Pound/dollar: UP at $1.3086 from $1.3074
Euro/pound: DOWN at 83.40 pence from 83.41 pence
Dollar/yen: UP at 123.73 yen from 123.60 yen
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