Zürcher Nachrichten - Stocks wilt as investors brace for US Fed tightening

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Stocks wilt as investors brace for US Fed tightening
Stocks wilt as investors brace for US Fed tightening

Stocks wilt as investors brace for US Fed tightening

US and European stocks retreated Thursday after minutes from central banks showed US policymakers ready to aggressively wind back easy-money policies while their eurozone counterparts disagreed over their own way forward.

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Meanwhile, oil prices continued to slide following heavy losses on Wednesday that had been triggered by concerns about weaker demand because of economic slowdown, with Brent crude falling below $100 per barrel.

A surge of Covid cases in major consumer China has raised concerns about demand, as has the surge in prices following the Russian invasion of Ukraine and Western sanctions.

On Wall Street all three major stock indices were lower in late morning trading, with Dow dropping 0.7 percent.

In Europe, London and Frankfurt ended the day down 0.5 percent, while Paris shed 0.6 percent.

Minutes showed the Fed in March opted to raise US borrowing costs rates by a quarter percentage point, mindful of "greater near-term uncertainty associated with Russia's invasion of Ukraine".

But some policymakers had favoured lifting rates even higher, by half a percentage point, to rein in decades-high inflation which is threatening to derail the economic recovery.

"Last night’s Fed minutes have recommitted the central bank to its path of tightening policy, leaving equities vulnerable in the short term after the bounce from the March lows," said Chris Beauchamp, chief market analyst at online trading platform IG.

- Inflation fight -

At their own meeting last month, European Central Bank policymakers disagreed on how to respond to runaway inflation and economic uncertainty caused by Russia's invasion of Ukraine, minutes indicated Thursday.

"A large number of members held the view that the current high level of inflation and its persistence called for immediate further steps towards monetary policy normalisation," the minutes read.

The ECB's governing council played it safe at the March meeting, agreeing to wind down monthly bond purchases at an accelerated pace in the second quarter, while keeping the end date of the stimulus scheme flexible.

An interest rate hike would follow "some time" after the end of the bond-buying scheme, it said.

But the minutes revealed that some governors wanted to go further to combat inflation, as the war in Ukraine further pushes up prices for energy, food and raw materials.

The prospect of rates rising at a quicker pace over the coming months has added to a wave of uncertainty across trading floors.

Central banks across the world are under fierce pressure to tackle runaway inflation, which has soared further on a Ukraine-driven spike in commodities like gas, oil and wheat.

March was the first Fed hike since it slashed US rates to zero when the Covid-19 pandemic broke out two years ago.

Although current US data points to a healthy economy, commentators warn of possible hard times ahead.

"While the economy continues to grow, there is a clear lack of bullish momentum in this market at the moment," said IG's Beauchamp.

- Key figures around 1530 GMT -

New York - Dow: DOWN 0.7 percent at 34,240.39 points

EURO STOXX 50: DOWN 0.6 percent at 3,802.10

London - FTSE 100: DOWN 0.5 percent at 7,551.81 (close)

Frankfurt - DAX: UP DOWN 0.5 percent at 14,078.15 (close)

Paris - CAC 40: DOWN 0.6 percent at 6,461.68 (close)

Tokyo - Nikkei 225: DOWN 1.7 percent at 26,888.57 (close)

Hong Kong - Hang Seng Index: DOWN 1.2 percent at 21,808.98 (close)

Shanghai - Composite: DOWN 1.4 percent at 3,236.70 (close)

Brent North Sea crude: DOWN 2.3 percent at $98.73 per barrel

West Texas Intermediate: DOWN 2.1 percent at $94.23 per barrel

Euro/dollar: UP at $1.0903 from $1.0896 late Wednesday

Pound/dollar: DOWN at $1.3063 from $1.3069

Euro/pound: UP at 83.46 pence from 83.37 pence

Dollar/yen: UP at 123.87 yen from 123.80 yen

burs-rl/cdw

O.Hofer--NZN