Stock markets and euro zone bond prices fell on Thursday after Switzerland delivered a surprise rate hike, after the US Federal Reserve sharply raised borrowing costs.
Europe’s regional Stoxx 600 share index, which rose on Wednesday after the European Central Bank promises a new mechanism to support weaker euro zone countries from raising interest rates in the bloc, fell 1.6%. London’s FTSE 100 lost 1.6%.
Futures markets said Wall Street’s S&P 500 index would drop 2.1% in early-year New York trades. The US stock barometer, which fell into a bear market on Monday, has closed 1.5% higher on Wednesday after the Fed raised its key interest rate by 0.75 percentage points.
But initially more relief, following a comment by Fed Chairman Jay Powell that further increases to this level would relatively uncommonwere quickly overwhelmed by concerns about persistently high inflation.
“We are pretty confident that there won’t be any sense of relief when we go in [the] FOMC meeting in July,” said strategists at NatWest Markets, referring to the next time the Federal Open Market Committee meets to set borrowing costs.
NatWest forecasts the annual US consumer price inflation rate will accelerate to 8.9% this month, as the aftermath of Russia’s invasion of Ukraine continues to push oil and food prices higher.
The Fed’s decision came on Thursday as the Swiss National Bank raised its policy rate for the first time in 15 years, beating economists’ expectations with a 0.5 percentage point increase. The Swiss franc rose 1.9% against the euro to €1.02 and 1.4% against the dollar to $0.98.
“The SNB has been in the ultra dovish camp for a long time,” said Francesco Pesole, a currency strategist at ING.
“If even they are hiking, it is sending a message to the markets that central banks are seeing this summer as their last chance to do something about inflation before they do. We reach global decline.”
Eurozone bonds came under pressure as investors questioned as the ECB, which called for an end to bond-buying stimulus last week, would meet its pledge on a new instrument to support countries in crisis. the block’s biggest debt.
Germany’s 10-year Bund yield rose 0.14 percentage points to 1.78 percent as the price of the eurozone’s benchmark debt instrument fell. Yields on Italian equivalents rose 0.13 percentage points to 3.94 percent and Spanish 10-year yields rose 0.13 percentage points to 3.01 percent.
The ECB on Wednesday said it would “accelerate the completion of the design of a new defragmentation engine,” which initially sent Italian bonds up.
“They have a plan to develop a plan, but the market wants more detail,” said Willem Sels, global chief investment officer at private bank HSBC.
“It is good news that the ECB has responded, but we have nothing new,” said Nadège Dufossé, head of cross-asset strategy at fund manager Candriam.
The pound fell 0.7 percent against the dollar to $1.209 ahead of the Bank of England’s monetary policy meeting on Thursday, when it is expected to raise interest rates by at least 0.25 points. percent, for the fifth consecutive increase, as it balances rising consumer prices with the economic downturn.
HSBC’s Sels said: “We think the BoE is approaching the end of its bull cycle, given the weak UK economy.
Asian shares were mixed, with Hong Kong’s Hang Seng index down 2.2% and Japan’s Topix up 0.6%.
