MILAN, June 16 (Reuters) – Global stocks fell on Thursday and bonds continued their slide after a surprise rate hike in Switzerland stoked concerns about rising inflation and an aggressive policy tightening outlook by global central banks.
The Swiss National Bank raised its key interest rate by 50 basis points for the first time in 15 years, which dampened sentiment and sent the safe-haven franc sharply higher. Continue reading
Hours later, the Bank of England announced a more cautious 25 basis point hike in interest rates, a day after the European Central Bank pledged support to cushion a bond market slide fueled by hawkish expectations. Continue reading
The MSCI benchmark for global equities (.MIWD00000PUS) was down 0.4% by 1158 GMT. The initially positive reaction to the widely expected 75 basis point (bps) rate hike by the US Federal Reserve also fizzled out.
The pan-European STOXX 600 (.STOXX) fell 2.4%, its lowest since February 2021, while the S&P 500 and Nasdaq e-mini futures fell 2.2% and 2.6%, respectively, indicating a reversal in the rally the previous session indicates.
“There’s a lot of nervousness. After the initial relief from the Fed…markets seem to have woken up that a 75 basis point rate hike is still on the cards,” says Giuseppe Sersale, strategist and portfolio manager at Anthilia in Milan.
“If even the Swiss central bank surprise hikes by half a point, investors clearly imagine that central bank tightening is still very severe. There is very little to celebrate,” he added.
While Swiss equities (.SSMI) were on the verge of confirming a bear market pattern, the UK top-stock benchmark FTSE 100 (.FTSE) bounced off lows as sterling plunged following the BoE’s rate hike, leading some to forecast a larger one movement refuted.
“Once again, the BoE looks like the shy cat alongside the Fed’s anti-inflation roar… A 6-3 vote over 25 basis points means sterling bulls will have little to underpin any attempt to push the pound against the pushing dollars higher,” said Chris Beauchamp, chief market analyst at IG Group in London.
EYE FALL
The Fed approved its biggest rate hike since 1994 on Wednesday, and officials forecast more steady hikes this year, targeting a 3.4% federal funds rate by year-end. Continue reading
The Fed forecasts also showed US economic growth slowing to a below-trend rate of 1.7% and policymakers expect to cut interest rates in 2024.
Data on Friday showed a stronger-than-expected rise in US inflation in May, along with a University of Michigan survey showing consumers’ five-year inflation expectations rose sharply to the highest level since June 2008.
In a news conference after the Fed’s last two-day meeting, Fed Chair Jerome Powell said the survey was “pretty flashy.”
“(Inflation expectations) seem too high. That’s one reason I think Powell wanted to do a 75… and I think they’ll go again in July,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia.
“They need to bring inflation down. They’re so far behind the curve it’s not funny.”
MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) fell 1.1%, erasing earlier gains.
The dollar regained some ground after retreating from a 20-year high after the Fed meeting.
The global dollar index, which tracks the greenback against a basket of six peers, was last up 0.25% to 105.06.
The Swiss franc surged after the surprise rate hike and had its best day against the euro in seven years. It was last up 1.8% against the euro to 1.019 and 1.4% against the dollar to 0.9805.
Sterling fell 0.2% to $1.2141. Immediately following the BoE decision, it fell as much as 1.1% before bouncing back.
YIELDS RISING
The SNB rate hike helped put European bond prices under renewed pressure as investors increased their bets on ECB rate hikes. Germany’s 10-year yield, the benchmark for the block, rose 26 basis points and was set for its biggest jump since 1998.
US 10-year Treasury yields rose 18 basis points to 3.475%.
Oil prices erased early gains on inflation concerns, reflected in rate hikes in the US, UK and Switzerland.
Brent crude was last down 1.9% to $116.2 a barrel and US crude was down 1.9% to $113.1.
Gold was lower as the dollar strengthened. Spot gold was last traded at $1,830.7 an ounce, down 0.8% on the day.
Reporting by Danilo Masoni and Andrew Galbraith; Edited by Kim Coghill and Catherine Evans
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