Stock markets around the world were in the red, while bond yields were at their highest in years, Thursday following news that the U.S. Federal Reserve will hasten its rate hikes and stimulus withdrawal, Reuters reports.
The European STOXX 600 index was down 1.3%, erasing its gains so far for 2022. Australian shares were down 2.7%, their biggest decline since early September 2020. Japan's Nikkei index was down 2.9%, its biggest daily decline since June.
"Some people are quite spooked by the minutes from the Fed that they could be tightening faster," Carlos de Sousa, an emerging markets strategist and portfolio manager at Vontobel Asset Management, told Reuters. "Maybe the market is overreacting a bit," de Sousa added, noting that just because the Fed says it might take a certain action does not yet make it a fact.
The minutes that the Federal Reserve released Wednesday showed that Fed officials are concerned about inflation lingering, as well as continued disruptions to supply chains around the world.
Wednesday, Nasdaq fell 3%, its biggest one-day percentage decline since February.
"There is a risk that the Fed might fall into the trap of making policy errors because they do have to perhaps hike interest rates faster than expected, but given the timing of their exit from quantitative easing, it could coincide with a slowdown in the economic cycle and also a decline in inflation on base effects," said Casanova.
The Federal Reserve's minutes also caused the yield on U.S. 10 year Treasury bond to reach 1.732% Thursday, up from its close of 1.703% Wednesday. Likewise, in Europe, 10-year Germany Bund yields rose to -0.05%, their highest since May 2019.
The U.S. dollar fell slightly as U.S. yields improved, declining by 0.21% to 115.86. Likewise, the euro was down 0.05% to $1.1307, and the dollar index crept up by the same percentage, to 96.228.
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