European stocks fell on Thursday as a sell-off began with a rally in appreciated tech stocks after the US central bank signaled a swift end to monetary stimulus in the era of the pandemic.
The region’s Stoxx 600 index fell 1.1%, London’s FTSE 100 lost 0.6% and Germany’s Xetra Dax lost 1.1%.
Stoxx hit a record high at the close on Wednesday as traders responded to fading concerns about the Omicron coronavirus variant by moving funds from beneficiaries of the lockout in the tech sector to banks. Energy commodities and groups are heavily represented in European indices.
On Thursday morning, all Stoxx sectors fell. While its technology sub-index performed the worst, industrial groups fell 1.2% and basic materials businesses fell 0.7%.
The moves come minutes after the Federal Reserve’s latest meeting revealed that officials at the central bank, have been boosting financial markets since March 2020 with a show large bond purchases and record low interest rates, it is widely agreed that time to speed up withdrawal of this support.
“Markets are waking up to running out of easy money,” said Olivier Marciot, cross-asset investment manager at Unigestion.
“We’ve got a lot of quantitative easing and monetary support, which creates an environment where all assets tend to thrive, and when you take that out,” he added. that would be the opposite. “It was a correlation shock when everything was battered at the same time.”
The Fed minutes also revealed the world’s most influential central bank may need to raise rates “sooner or faster” than officials initially predicted to rein in soaring inflation. .
Wall Street’s tech-focused Nasdaq Composite market share index fell 3.3% on Wednesday, in worst session as of February 2021. Low interest rates may justify higher stock prices as they make future earnings of companies more valuable, with this effect being most exaggerated for companies technology and other early stage companies.
But the prospect of higher borrowing costs also sweeps across all US markets. The Dow Jones Industrial Average, which hit a previous record high on Wednesday as trading was dominated by the theme of economic recovery, closed 1.1% lower.
U.S. Treasuries also fell on signals from the Fed that it will now turn to debate how to shrink its balance sheet, which has more than doubled in size to just under $9 billion since. early 2020, when the central bank aggressively increased its holdings of Treasuries and mortgage-backed securities.
The yield on the 10-year Treasury note, which is inversely proportional to its price, increased 0.02 percentage points to 1,725 percent. This benchmark debt yield, which affects borrowing costs and asset valuations around the world, has risen from about 1.63% earlier this week.
European government bonds were pushed up during the post-Fed sell-off. German 10-year bond yields rose to minus 0.05%, the highest level since May 2019. Riskier eurozone debt also took a hit, with Italian 10-year yields rising above 1.3% for the first time since July 2020.
In Asia, Japan’s Nikkei 225 closed about 2.9% lower and mainland China’s CSI 300 fell 1%. However, Hong Kong’s Hang Seng index rose 0.7% as Chinese technology shares fell heavily.
Additional reporting by Tommy Stubbington
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