European and US equities drop on Fed rate jitters

European and US stock markets fell Friday as investors dwelled on the prospect of rising US interest rates, while London was dented also by weak UK data.

Europe’s main bourses were all down more than one percent in afternoon trading as Wall Street opened.

The Dow sank 1.2 percent as trading got under way, with the S&P 500 and tech-heavy Nasdaq Composite showing less heavy losses.

“Investors took time to digest the Federal Reserve’s shock earlier this week that US interest rates might go up sooner than previously expected,” noted Russ Mould, investment director at stockbroker AJ Bell.

Analyst Patrick O’Hare at Briefing.com pointed hawkish comments Friday morning by Saint Louis Fed chief Jim Bullard, who will vote on the monetary policy committee next year.

“Equity index futures weakened earlier this morning during St. Louis Fed President Bullard’s interview with CNBC” during which he said “he expects a rate hike next year”, said O’Hare.

After Wednesday’s Fed meeting, officials’ “dot plot” forecast for rates showed they were now more likely to raise them in 2023 — a year earlier than previously suggested — soothing worries about runaway prices, for now. Some policymakers projected lift-off for rates as soon as 2022.

Markets mostly took the prospect of a hike largely in their stride, and Wall Street ended Thursday on a mixed note.

With the post-pandemic recovery well under way in most countries as vaccination campaigns roll out and containment measures are eased, the general mood across trading floors is positive and observers are predicting equities will continue the rally that started in April 2020.

The blockbuster growth enjoyed this year has been tempered by worries that a surge in buying spurred by pent-up demand for goods would combine with supply constraints and bottlenecks to send prices rocketing.

That, in turn, has raised concerns central banks may have to tighten their ultra-loose monetary policies earlier than previously flagged.

– Dollar hits commodities –

The prospect of higher rates sent the greenback rallying this week and it largely maintained its strength Friday.

But that, in turn, has weighed upon dollar-priced commodities, with oil taking a hit over the past two days while metals have tumbled from recent highs.

“There can be no doubt that the froth has well and truly been blown off many commodity markets,” said National Australia Bank’s Ray Attrill.

Gold, a key go-to asset in times of high inflation, touched a three-month low on Thursday before trimming losses on Friday.

– Key figures at 1330 GMT –

London – FTSE 100: DOWN 1.6 percent at 7,037.98 points

Frankfurt – DAX 30: DOWN 1.5 percent at 15,490.33

Paris – CAC 40: DOWN 1.2 percent at 6,584.35

EURO STOXX 50: DOWN 1.4 percent at 4,099.87

New York – Dow: DOWN 1.2 percent at 33,419.35

Tokyo – Nikkei 225: DOWN 0.2 percent at 28,964.08 (close)

Hong Kong – Hang Seng Index: UP 0.9 percent at 28,801.27 (close)

Shanghai – Composite: FLAT at 3,525.10 (close)

Euro/dollar: DOWN at $1.1877 from $1.1907 at 2100 GMT

Pound/dollar: DOWN at $1.3851 from $1.3922

Euro/pound: UP at 85.74 pence from 85.53 pence

Dollar/yen: UP at 110.30 yen from 110.21 yen

Brent North Sea crude: DOWN 0.6 percent at $72.64 per barrel

West Texas Intermediate: DOWN 0.4 percent at $70.79 per barrel

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