World stock markets loosen up over Fed rate outlook

February 23, 2018 | 09:22

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World stock markets regained their composure on Thursday (Feb 22), recovering from falls seen after Federal Reserve minutes fanned expectations that US interest rates would rise further and faster than previously thought.

world stock markets loosen up over fed rate outlook

Logo of the London Stock Exchange

Wall Street was higher in late morning New York, wiping out the previous day's losses seen on the Fed news which also pushed Asian markets deep into the red.

Led by the more relaxed mood across the Atlantic, eurozone stock markets steadily clawed their way higher after early losses to close little changed or with modest gains.

London's benchmark FTSE 100 index, however, underperformed as investors grappled with a raft of company results and a slight downgrading of 2017 UK growth.

The much-anticipated notes from the Fed's January policy meeting showed the board thought Donald Trump's sweeping tax cuts would fire up the already humming economy, pushing inflation higher.

Analysts speculated that the Fed would lift interest rates at its next meeting in March, but there is debate about whether it will now carry out four increases this year in light of the recent spate of strong data, instead of the three that many have been predicting.

Fed thinking has "evolved towards a more hawkish tone", said Rodrigo Catril, forex strategist at National Australia Bank.

FOUR IS THE NEW THREE

But some said the likelihood of four rate increases in 2018 instead of three was not really a surprise.

"We have long expected the Fed to hike interest rates four times this year, on the basis that Congress would loosen fiscal policy and core inflation would rebound markedly in 2018," said Paul Ashworth, an analyst at Capital Economics.

In London, stocks of energy provider Centrica were the big risers, helping to bolster the market after delivering results that were not as bad as feared.

Despite reporting a hefty loss, banking giant Barclays also rose as investors bet on it increasing its dividend this year and conducting more share buybacks.

Investors have been on edge since the start of this month when global markets were sent spinning by a strong US jobs and wages report that fuelled talk of tighter borrowing costs.

Equities around the world have surged to all-time highs thanks to a years-long rally built on cheap credit from crisis-era stimulus. But with economies globally improving, central banks are beginning to wind those policies in.

In Asia, Tokyo ended 1.1 per cent lower and Hong Kong fell 1.5 per cent but Shanghai jumped more than two per cent as mainland traders returned from a week-long break for the Lunar New Year celebrations.

The dollar, which had been recovering against its major peers in previous sessions, paused on Thursday, losing ground against the euro, pound and the yen which is considered a safe-haven asset in times of volatility and uncertainty.