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Stocks drop as traders mull central bank moves

World stock markets fell Friday after the previous day’s rally, as traders mulled central bank moves to combat soaring inflation.

Wall Street — © Digital Journal
Wall Street — © Digital Journal

World stock markets fell Friday after the previous day’s rally, as traders mulled central bank moves to combat soaring inflation, while navigating a Covid-19 infection spike that threatens an already fragile economic recovery.

In afternoon trading Paris stocks dropped 1.4 percent and Frankfurt shed 1.0 percent following earlier Asian losses.

London equities dipped less than 0.1 percent one day after the Bank of England delivered a shock interest rate hike to counter decade-high UK inflation.

Wall Street opened lower, with the Dow sliding 0.5 percent.

Oil prices fell 1.6 percent on renewed demand fears linked to the Omicron Covid variant.

European indices had rallied Thursday after the US Federal Reserve and European Central Bank laid out inflation-fighting plans and the BoE hiked interest rates from a record low to 0.25 percent.

Asia had also leapt after Wall Street shot higher Wednesday upon the Fed plotting a more hawkish path by speeding up the taper of its pandemic stimulus and signalled that policymakers expect a number of interest rate hikes in 2022 and beyond as the economy rebounds.

– Bank calls ‘remove uncertainty’ –

“European markets are (mostly) following their US and Asian counterparts lower today, with the initial positive reaction in the face of Fed and BoE monetary tightening faltering as we head into the weekend,” said IG analyst Joshua Mahony.

“A week dominated by central banks draws to an end, removing much of the uncertainty that has plagued sentiment of late.

“While Omicron provides an ongoing risk, the perception that this wave could be short-lived does provide the basis for traders to buy into stock weakness.”

The Fed news on Wednesday was met with a markets rally as investors welcomed an end to the some of the uncertainty that had long plagued markets.

OANDA analyst Craig Erlam said a gauge of possible rate hikes “was towards the hawkish end of expectations, something investors welcomed with open arms”.

He added: “It’s not the possibility of inflation, rather the prospect of it rising out of control that’s prompting the move and clearly, investors fear inflation far more than modest tightening. As they should.”

A BoE rate hike and the ECB’s plan to taper its financial support — but extending other help — were met with similar upbeat responses in Europe.

However, Wall Street retreated Thursday as investors took stock of the new policy, with tech firms — which are more susceptible to higher borrowing costs — taking the brunt of the selling, sending the Nasdaq diving.

Wall Street indices fell further at the open of trading on Friday.

The move lower reflects the “economic uncertainty of the Omicron variant and its potential influence on the Fed to tread more cautiously with policy,” said analyst Patrick J. O’Hare at Briefing.com.

Tokyo stocks closed lower on Friday on profit-taking.

Concluding a two-day meeting, the Bank of Japan decided to partially extend its special loan programme to support companies hit by the pandemic but decided to scale back other measures, while keeping its key monetary policy unchanged.

– Key figures around 1430 GMT –

London – FTSE 100: DOWN less than 0.1 percent at 7,255.53 points

Frankfurt – DAX: DOWN 1.0 percent at 15,475.84

Paris – CAC 40: DOWN 1.4 percent at 6,906.65

EURO STOXX 50: DOWN 1.3 percent at 4,148.16

New York – Dow: DOWN 0.5 percent at 35,708.40

Tokyo – Nikkei 225: DOWN 1.8 percent at 28,545.68 (close)

Hong Kong – Hang Seng Index: DOWN 1.2 percent at 23,192.63 (close)

Shanghai – Composite: DOWN 1.2 percent at 3,632.36 (close)

Euro/dollar: DOWN at $1.1306 from $1.1330 late on Thursday

Pound/dollar: DOWN at $1.3288 from $1.3323

Euro/pound: UP at 85.08 pence from 85.05 pence

Dollar/yen: DOWN at 113.32 from 113.67 yen

Brent North Sea crude: DOWN 1.6 percent at $73.86 per barrel

West Texas Intermediate: DOWN 1.6 percent at $71.22

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With 2,400 staff representing 100 different nationalities, AFP covers the world as a leading global news agency. AFP provides fast, comprehensive and verified coverage of the issues affecting our daily lives.

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