European stock markets slump after Fed holds rates near zero
European stock markets dropped sharply on Thursday as January’s market turbulence continued after the Federal Reserve’s hawkish comments regarding interest rate rises.
Last night, the US central bank indicated it plans to start raising interest rates “soon” to cool inflation, wiping out a Wall Street rally on Wednesday.
It held interest rates at near zero, but reiterated its commitment to withdrawing its pandemic-era easy money policies in the face of rapid price increases.
“With inflation well above 2% and a strong labour market, the committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the policy-setting federal open market committee (FOMC) said in its statement.
“The Fed’s gone from being the market’s best friend, to a possible enemy,” Kyle Rodda, analyst at online trading platform IG, said. He added that the Fed was set on “bringing inflation down, rather than protecting asset prices”.
Watch: What is inflation and why is it important?
Elsewhere, UK car production slumped to its lowest level since 1956, as rising energy costs and computer chips shortages hurt the recovery.
Across the pond, S&P 500 futures (ES=F) were down 0.5%, Dow futures (YM=F) shed 0.6%, and Nasdaq futures (NQ=F) were 0.4% lower as trade began in Europe.
Later on Thursday, traders will have their focus on how the US economy fared in the final three months of last year, when the first estimate of GDP for October-December is released.
Economists predict that growth sped up to an annualised rate of 5.5%, from 2.3% in the third quarter, before the Omicron variant hit at the end of the year.
Read more: Treasury Committee report: UK tax burden to rise to record levels
Most of the gain is expected to come from a strong personal consumption component of 3.3%, up from 2% in Q3.
Last week US jobless claims jumped sharply to 286,000, which may well have been due to post Christmas and New Year disruptions, due to Omicron. This week it is expected to see a modest fall to 265,000, with continuing claims at 1.65 million.
Meanwhile, Asian stock markets tumbled by unusually wide margins overnight, with the Nikkei (^N225) tumbling 3.1% in Japan, the Hang Seng (^HSI) down 2%in Hong Kong, and the Shanghai Composite (000001.SS) dipping 1.8%.
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