World markets dip as monetary policy tightens in US, Europe, Asia

New York, June 16 (PTI/AP): US markets appear headed for a sharply lower open on Thursday, one day after the Federal Reserve raised its key interest rate by three-quarters of a point and signalled more rate hikes were coming to fight inflation.

Central banks in Europe are following along, including a surprise rate hike Thursday in Switzerland, a nation that has left interest rates unchanged for years.

Futures for the Dow Jones industrials tumbled 1.7 per cent and futures for the S and P 500 skidded 2.1 per cent.

European benchmarks and most Asian markets also fell, as did the price of oil.

Shares in New York rallied Wednesday afternoon after the Fed’s hike, the biggest since 1994, as investors initially took heart from Chair Jerome Powell’s comments suggesting future rate increases may be more modest.

But economists warned the gains might be short-lived given the extent that high inflation has seeped into the world economy.

The Bank of England raised its main rate on Thursday, but only by a quarter point, shrugging off pressure for a bolder move to combat price increases that have pushed inflation to a 40-year high.

It was the United Kingdom central bank’s fifth quarter-point increase since December, which took its key rate to 1.25 per cent.

The Swiss National Bank raised rates by surprisingly strong half percentage point, to a still low minus 0.25 per cent.

Taiwan’s central bank raised its key rate by 0.125 basis points to 1.5 per cent.

The clear read-through here is the FOMC (Fed) has unleashed the central bank Hawkish Genie from the bottle, and we should expect more aggressive follow-through from other central banks except those who are economically challenged, Stephen Innes of SPI Asset Management said in a commentary.

France’s CAC 40 sank 2 per cent, Germany’s DAX dropped 2.7per cent and Britain’s FTSE 100 shed 2.3 per cent.

In Asian trading, Japan’s benchmark Nikkei 225 added 0.4 per cent to finish at 26,431.20.

Australia’s S and P/ASX 200 gave up earlier gains, falling nearly 0.2 per cent to 6,591.10.

South Korea’s Kospi edged 0.2 per cent higher to 2,451.41.

Hong Kong’s Hang Seng shed 2.2 per cent to 20,845.43, while the Shanghai Composite fell 0.6 per cent to 3,285.38.

The Bank of Japan started a two-day policy meeting that will end on Friday. The Japanese central bank is under pressure to act given downward pressures on the yen from US rate hikes and super-low rates in Japan. But its aim has been to foster sustainable inflation after years of fending off deflation, or falling prices.

Investors have been selling yen and buying dollars in anticipation of higher yields from dollar-denominated holdings. Japanese politicians and the central bank chief have expressed worries about the declining yen, but no dramatic policy changes are expected.

The US dollar slipped to 132.80 Japanese yen from 133.82 yen. It recently topped 135 yen, the highest level in 20 years. The euro cost USD 1.0394, down from USD 1.0447.

All kinds of investments, from bonds to bitcoin, have tumbled this year as high inflation forces central banks to try to slow inflation that has flared as economies recover from disruptions of the pandemic. The war in Ukraine has added to those price pressures.

Powell said on Wednesday the Fed is moving expeditiously to get rates closer to normal levels after last week’s stunning report that showed inflation at the consumer level unexpectedly accelerated last month, dashing hopes that inflation may have already peaked.

However, Powell, also hinted that rate increases later this year may be smaller. That appeared to assuage fears the central bank might overshoot its goal of cooling inflation and tip the economy into a downturn.

The Fed is not trying to induce a recession now, let’s be clear about that, Powell said. He called Wednesday’s big increase front-end loading .

Even without recession, higher interest rates hurt prices for investments. The hardest-hit have been those that soared the most in the easy-money era of ultralow interest rates, including high-growth technology stocks and cryptocurrencies.

The war in Ukraine has helped send prices for oil soaring because the region is a major producer of energy.

In energy trading, benchmark US crude dropped USD 1.59 to USD 113.72 a barrel in electronic trading on the New York Mercantile Exchange.

It shed USD 3.62 on Wednesday to USD 115.31 a barrel. Brent crude, the international standard, gave up USD 1.73 to USD 116.78 a barrel. (AP)