Global stocks mostly sink on Fed rate hike plans

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Financial stock exchange market display screen board on the street
Financial stock exchange market display screen board on the street

Asian and European stocks mostly sank Thursday after the US Federal Reserve signalled it was ready to hike interest rates sooner than expected to combat spiking inflation.

London stocks slid in midday deals, while Frankfurt and Paris fell heavily in early afternoon eurozone trade.

The dollar held steady as traders digested the Fed news, while oil prices continued to climb on easing supply constraints from OPEC+ crude producers.

Minutes from the Fed's latest monetary policy meeting showed that officials were confident the world's top economy was in good shape and able to absorb high borrowing costs, despite concerns over the fast-spreading Omicron coronavirus variant.

"The Federal Reserve continues to wield considerable power over global markets and its latest comments are not what investors want to hear," said AJ Bell investment director Russ Mould.

"Minutes... implied that a tight jobs market and ongoing inflation could result in a more aggressive change in monetary policy with interest rates going up sooner than expected."

- 'Markets caught off guard' -

The prospect of rising interest rates in the world's biggest economy tends to weigh on global share prices because it increases company borrowing costs and curbs consumer incomes.

CMC Markets analyst Michael Hewson said the Fed update "appears to have caught markets off guard".

Tech firms led losses across most markets Thursday following a painful sell-off in New York.

The Federal Open Market Committee has already started winding back the vast bond-buying stimulus put in place at the start of the pandemic as inflation remains stubbornly high, with the programme due to end in March.

Traders had previously expected the bank to then start lifting rates.

Now officials are ready to act, with the Fed minutes saying: "It may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated."

The move away from massive central bank support around the world has rattled markets in recent months -- having notched up a series of records or multi-year highs on the cheap cash.

With the punch bowl being taken away, traders are in retreat, particularly those invested in tech firms, which are more susceptible to higher interest rates owing to their reliance on borrowing to fuel growth.

On Wall Street, the Nasdaq plunged more than three percent Wednesday, and the Dow and S&P 500 lost more than one percent after starting the week with records peaks.

Asia tracked the selling. Tokyo led losses, falling almost three percent, while Sydney was off almost as much. Shanghai, Taipei, Manila and Jakarta were also down.

On the upside, Hong Kong rallied in late trade to end up, with many of its tech firms enjoying some much-needed bargain-buying, though worries over Beijing's crackdown on the sector continued to haunt traders.

Elsewhere, bitcoin briefly dropped to a one-month low at $42,506, well down from the record near $69,000 seen in November.

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