European Shares Seen Sharply Lower As Rate Worries Bite

stockmarkets aug16 22apr22 lt

A broader sell-off is on the cards as the prospects of aggressive policy tightening by the Federal Reserve boosted yields and dented demand for equities.

The dollar climbed and U.S. bond yields marched higher while gold was on track to posit its first weekly drop in three after Federal Reserve Chair Jerome Powell said he sees merit for front-loading interest-rate increases to bring down inflation.

Economists now expect 75 bps hikes at the June and July FOMC meetings after a 50-bp hike in May.

Closer home, ECB President Christine Lagarde said inflation must be addressed "in a gradual way" and that future steps "will depend on the incoming data and the evolving assessment of the outlook".

Separately, Bank of England Governor Andrew Bailey has said rate-setters are not behind the curve on inflation and that the Bank's 2 percent price target was facing its biggest credibility test.

Asian stocks tumbled as investors fretted about the prospect of rate hikes in the United States and ongoing pandemic disruptions in China. Oil prices fell in Asian trade and were on track for near 4 percent weekly decline on demand concerns.

Flash Purchasing Managers' survey results from euro area and the U.K. are due later in the session, headlining a light day for the European economic news.

Overnight, U.S. stocks pulled back sharply and Treasury yields rose across the curve after Powell said he saw merit in "front-end loading" policy moves, including a 50 basis point rate hike at the May FOMC meeting.

The tech-heavy Nasdaq Composite tumbled 2.1 percent to reach its lowest closing level in over a month, while the Dow gave up 1.1 percent and the S&P 500 shed 1.5 percent.

European stocks closed higher Thursday on the back of strong earnings. The pan European Stoxx 600 gained 0.3 percent.

The German DAX rallied 1 percent and France's CAC 40 index surged 1.4 percent while the U.K.'s FTSE finished marginally lower, weighed down by underwhelming production updates from mining companies.

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