Recession fears after a sharp hike in interest rates announced by the US Federal Reserve weighed on investors on Thursday, sending equity markets plummeting and bond yields soaring on Thursday.
European indices highlighted their losses. At around 13:55 GMT, Frankfurt and London were down just over 3%, Paris down 2.52% and Milan down 2.55%.
The New York Stock Exchange opened wide in the red. In the early IPOs, the tech-heavy Nasdaq suffered the most (-3.02%), while the Dow Jones and S&P500 lost 2.31% and 2.76% respectively.
The day before, however, Wall Street had welcomed the Federal Reserve’s (Fed) determination to fight inflation with relief, while “the announcements were far from accommodating,” according to Swissquote analyst Ipek Ozkardeskaya.
The Fed announced a 0.75 percentage point hike in interest rates, the sharpest and not the last monetary tightening since 1994, with the institution targeting a range of 3.25% to 3.50% by the end of the year.
“Given that inflation is sure to remain high this summer, it seems plausible that the Fed will hike rates by 75 basis points in July and 50 basis points in September” before moving to a 25 basis point hike at the start of winter basis points, predicts Vincent Juvyns , strategist at JP Morgan AM.
Perhaps at the expense of the US economy: the monetary institute has significantly lowered its economic growth forecast for 2022 in the USA.
While he wants to avoid a recession, Fed Chair Jerome Powell acknowledged that “there is always a risk of going too far or not going far enough”.
The “fact that the Fed is willing to accept a deterioration in economic conditions” is scaring investors, according to ActivTrades analyst Pierre Veyret.
This caused interest rates on the debt of European countries and the United States to rise again, ranging between 12 and 16 basis points.
After a lackluster start to the session, the euro and pound recovered modestly against the dollar, with the single currency gaining 0.15% to $1.0459, while the pound rose following the Bank of England decision around 13:55 GMT by 0.55% to $1.2249 (BoE) to raise its rates by 0.25 percentage point.
Unlike the Fed, it has not decided to raise interest rates more sharply in the face of inflation, but it “will be particularly vigilant for indications of persistent inflationary pressures and will react vigorously if necessary,” it promises in the minutes of the meeting.
The BoE now expects inflation to peak at “more than 11%” in October, up from 9% over a year in April.
Tech, which relies heavily on interest rates to fund its growth, took a hit.
In New York, Alphabet, Google’s parent company, was down 1.86% in early trade, Microsoft down 2.29%, while Apple and Meta (Facebook) fell more than 3%.
In Frankfurt, Zalando fell 11.00%, Delivery Hero 6.82% and Infineon 4.94%. In Paris, STMicroelectronics returned 4.20% and Dassault Systèmes 1.43%. Deliveroo down 5.03% in London
Energy stocks suffer Energy stocks fell after further cuts in gas supplies from Russian giant Gazprom, whose boss said on Thursday the company will enforce its own rules with its products.
In Frankfurt, Uniper lost 11.31% and Siemens Energy 3.57% around 13:40 GMT. In Paris, Engie fell 8.66% after noting a “supply drop” although it did so without “supply impacting” customers.
Eni, which announced on Thursday that Gazprom would only deliver 65% of the requested volumes, also lost 4.87% in Milan, while Enel fell 3.40%.
On the side of oil and bitcoin
Oil prices fell after the Fed’s announcements that are likely to cut demand in the United States.
The price of a barrel of North Sea Brent fell 1.56% to $116.66 and that of a barrel of American WTI fell 1.03% to $113.12 around 13:40 GMT.
Bitcoin fell 2.52% to $21,105.