Shares fall as surprise Swiss rate hike adds to policy angst

Shares fall as surprise Swiss rate hike adds to policy angst

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© Reuters. People wearing protective masks, amid the coronavirus disease (COVID-19) outbreak, are reflected on an electronic board displaying Japan’s stock prices outside a brokerage in Tokyo, Japan, October 5, 2021. REUTERS/Kim Kyung-Hoon

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By Danilo Masoni and Andrew Galbraith

MILAN/SHANGHAI (Reuters) – World stocks fell on Thursday and the dollar regained its footing on concerns over the impact of surging inflation and an aggressive policy tightening outlook from global central banks.

The Swiss National Bank raised its policy interest rate for the first time in 15 years with a surprise 50 basis point hike that soured the mood and sent the safe-haven franc up sharply.

The MSCI’s benchmark for global stocks gave up earlier gains and by 0803 GMT was down 0.3%. The initial positive reaction to the widely expected 75 basis point rate hike by the U.S. Federal Reserve also fizzled out.

Later on Thursday the focus will turn to the Bank of England which is also expected to raise rates to tackle inflation, a day after the European Central Bank promised fresh support to temper a bond market rout.

The pan-European was down more than 1%, while fell 1.8%.

“There’s a lot of nervousness. After the initial relief to the Fed… markets seem to have woken up that it is still a 75 basis point rate hike,” Giuseppe Sersale, strategist and portfolio manager at Anthilia in Milan.

“If even the Swiss central bank surprisingly raises by half a point clearly investors imagine that the tightening of central banks is still very violent. There is very little to be cheerful about,” he added.

The Fed approved on Wednesday its biggest interest rate hike since 1994. Fed officials also see further steady rises this year, targeting a federal funds rate of 3.4% by year-end.

Fed projections showed U.S. economic growth slowing to a below-trend rate of 1.7%, and policymakers expect to cut interest rates in 2024.

Data on Friday showed a sharper-than-expected rise in U.S. inflation in May, alongside a University of Michigan survey showing consumers’ five-year inflation expectations jumping sharply to their highest since June 2008.

In a news conference following the Fed’s latest two-day policy meeting, Fed Chair Jerome Powell said that the survey was “quite eye-catching”.

“(Inflation expectations) are starting to look like they’re too high. That I think is one reason why Powell wanted to do a 75 … And I think they will also go again in July,” said Joseph Capurso, head of international economics at Commonwealth Bank of Australia (OTC:).

“They’ve got to get inflation down. They’re so far behind the curve it’s not funny.”

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1%, erasing earlier gains.

After retreating from a 20-year peak following the Fed meeting, the dollar regained its footing in the Asian session.

The global , which tracks the greenback against a basket of six peers, was last up 0.5% at 105.29.

The Swiss franc soared after the Swiss National Bank took markets by surprise with the large rate hike. It was last up almost 1.6% against the euro at 1.0225 and 1% higher against the dollar 0.9848.

U.S. Treasury yields rose with the 10-year yield at 3.362% from a close of 3.291% on Wednesday.

Oil prices recovered from a steep drop as investors focused on tight supplies. was last up 0.3% to $118.8 per barrel and added 0.2% to $115.6.

Gold was slightly lower as the dollar firmed. last traded at $1,829.4 per ounce, down 0.2% on the day. [GOL/]

Published at Thu, 16 Jun 2022 08:50:56 -0700