The US central bank’s rate hike brought fears of a recession back to the top of investor concerns, pushing stock markets sharply lower and soaring bond rates soaring on Thursday. European indices continued to move in the red. Around 12:10 GMT, Paris lost 1.72%, Frankfurt 2.47%, Milan 2.29% and London 2.38%.
The New York Stock Exchange on Wednesday welcomed the Federal Reserve’s (Fed) determination to fight inflation, but futures for the three major indices are now down 1.62% for the Dow Jones and 2.21% for the Nasdaq, suggesting a rout at the opening.
Also read: The franc jumps after the surprise rise in SNB rates
“The announcements were anything but accommodating,” said Ipek Ozkardeskaya, a Swissquote analyst. The Fed on Wednesday night announced a 0.75 percentage point increase in its key interest rates, the strongest monetary turnaround since 1994.
Other similar rate hikes are expected in the coming months, including an increase of 50 or 75 basis points at the end of July, until rates reach the range of 3.25 to 3.50% by the end of the year.
The Fed has shown its determination to fight inflation, perhaps to the detriment of US economic activity. The monetary institution has sharply lowered its forecast for economic growth for the United States this year.
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Although he wants to avoid a recession in the world’s largest economy, Fed boss Jerome Powell has acknowledged that there is “always a risk of going too far or not far enough,” but that “the worst mistake […] would be to fail ”to control inflation. “The Fed’s willingness to accept deteriorating economic conditions” frightens investors, according to Pierre Veyret, an activist for ActivTrades.
“It seems impossible to avoid the recession now – and that suggests that the pillar of profits that supports the S&P 500 is going to collapse,” warns Neil Wilson, an analyst at Markets.com.
“Persistent inflationary pressures”
Fed measures caused a further surge in interest rates on European and US debt rates, which rose by 15 to 20 basis points, as well as a rise in the dollar. The greenback was 0.50% against the European currency at 0.9621 euros per dollar. And the pound was down 0.31% at $ 1.2140 around 12:10 GMT.
Also read: The Fed is taking a historic step to counter inflation
It was mainly the decision of the Bank of England (BoE) to increase its rates by 0.25 points that plummeted the pound. Unlike the Fed, it has not decided to raise its rates more sharply in the face of inflation, but it will “pay particular attention to indications of persistent inflationary pressures and respond strongly if necessary,” she said. the minutes of his meeting. The BoE is now counting on a peak of inflation at “more than 11%” in October, in April the rise in prices had reached 9% over a year.
Energy values suffer
Energy stocks were falling after Russian giant Gazprom announced on Wednesday that it would cut its gas supplies to Europe by a third, following a sharp first drop. In Frankfurt, Uniper lost 8.92%, E.ON 8.40% and Siemens Energy 4.39%.
In Paris, Engie fell 7.99%, the energy company saw a “reduction in deliveries”, with no “impact on the supply” of customers and is following “this situation carefully”, according to a statement sent to AFP . EDF was down 3.84%. Eni, which saw its Russian gas deliveries fall 15% on Wednesday, also lost 4.83% in Milan, while Enel fell 3.58%.
On the oil and bitcoin side
Oil prices were falling following the Fed’s announcements, which could reduce demand in the United States. The price of a barrel of Brent from the North Sea fell 1.97% to $ 116.09 and that of a barrel of US WTI fell 1.63% to $ 113.47 around 12:05 GMT. Bitcoin fell 2.61% to $ 21,070.
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