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European Shares Stare At Gap-down Start On Hawkish Fed

stockmarkets jan18 06jan22 lt

European stocks look set to open deep in the red on Thursday after worries about interest-rate increases dragged down U.S. shares from a record overnight.

Markets are spooked by a decisively hawkish December FOMC minutes showing unanimous agreement on the need to tighten monetary policy going forward.

Against the backdrop of a firming economic recovery and elevated inflation, the minutes underscored the likelihood of three rate hikes this year and also signaled a reduction in the size of the balance sheet that could start by mid-2022.

Asian markets followed Wall Street lower while the dollar traded near a five-year high against the yen after a surge in U.S. Treasury yields.

Oil prices fell for the first time in four days, easing from their highest levels in more than a month on fuel demand concerns.

Gold was down while Bitcoin tumbled to below $44,000, the lowest since its early-December weekend flash crash.

In economic releases, German factory orders and construction PMI figures as well as preliminary December inflation data are due out later in the day.

Across the Atlantic, trading may be impacted by reaction to reports on weekly jobless claims, the U.S. trade deficit, factory orders and service sector activity.

The services sector in China continued to expand in December, and at a faster pace, the latest survey from Caixin revealed earlier today with a services PMI score of 53.1, up from 52.1 in November.

U.S. stocks tumbled overnight and bond yields moved higher amid interest-rate worries after minutes from the Federal Reserve's last meeting sounded a more hawkish tone, with policymakers admitting that there is plenty to justify tighter monetary policy to fight inflation.

Strong ADP private payroll report also boosted expectations of early rate increases. The Dow lost 1.1 percent, the S&P 500 declined 1.9 percent and the tech-heavy Composite index plunged as much as 3.3 percent.

European markets reached new highs on Wednesday despite Covid-19 worries and uncertainty surrounding interest-rate outlook.

The pan European Stoxx 600 ended flat with a positive bias. The German DAX climbed 0.7 percent, France's CAC 40 index advanced 0.8 percent and the U.K.'s FTSE 100 added 0.2 percent.

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