European shares and US stock futures turned lower on Thursday as investors weighed the Federal Reserve’s move to stamp out scorching inflation with extra sharp interest rate rises.
The regional Stoxx Europe 600 share index, which rallied on Wednesday after the European Central Bank promised a new mechanism to support weaker eurozone nations from rising interest rates in the bloc, fell 1.4 per cent. London’s FTSE 100 lost 1.5 per cent.
Futures markets indicated the US’s S&P 500 index would fall 1.9 per cent in early New York dealings.
The US stock barometer, which fell into a bear market on Monday, had closed 1.5 per cent higher on Wednesday after the Fed raised its main interest rate by 0.75 percentage points.
At a press conference following the announcement of the decision to raise borrowing costs by the largest amount since 1994, Fed chair Jay Powell Powell said he expected a 0.75 percentage point increase to be relatively uncommon.
“But we are pretty confident there won’t be any sense of relief heading into [the] July FOMC meeting,” strategists at NatWest Markets said in a note to clients, referring to the next time the Federal Open Market Committee meets to set borrowing costs.
NatWest forecasts the annual pace of US consumer price inflation will hit a fresh 40-year high of 8.9 per cent this month, as the fallout from Russia’s invasion of Ukraine continues to drive oil and food prices higher.
In government debt markets, the yield on the benchmark 10-year US Treasury note, which moves inversely to its price and sets borrowing costs across the globe, dropped 0.03 percentage points to 3.37 per cent.
In currencies, the euro dropped 0.5 per cent against the dollar to just under $1.04.
“It was good news that the ECB reacted,” said Nadège Dufossé, head of cross-asset strategy at fund manager Candriam, in relation to the central bank’s announcement on Wednesday. But regarding the design of the new support tool, which economists had already anticipated, “actually we are seeing nothing new”.
The pound fell 0.9 per cent to just under $1.21 ahead of the Bank of England’s rate-setting meeting on Thursday, at which it is expected to lift interest rates by at least 0.25 percentage points, as it balances surging consumer prices with an economic slowdown.
Asian stock markets were mixed, with Hong Kong’s Hang Seng index 1.7 per cent lower and Japan’s Topix gaining 0.6 per cent.