London’s FTSE 100 and European stock indexes were mostly lower on Thursday on expectations that US interest rates will remain high for longer. Markets are under the impression of Fed Chairman Jerome Powell’s testimony before the US House of Representatives Financial Services Committee.
Although Powell stressed that “no decision has been made” on the size of the next rate hike expected later this month, investors saw his speech as a hint of continued monetary policy tightening. He confirmed this in the second part of the address, stating that the “tightening” of monetary policy will continue as long as inflation continues.
The FTSE 100 lost 0.13 percent in the opening session on Thursday, while France’s CAC 40 fell 0.11 percent. The German DAX weakened by 0.2 percent. New York Stock Exchange indexes oscillated between modest gains and losses a day earlier. The S&P 500 and Nasdaq closed the session in positive territory, while the Dow Jones Industrial Average posted a small loss.
Powell reiterated his “hawkish” message on Wednesday that key interest rates could rise faster than expected but stressed that the central bank’s policy decisions remain data-driven, Yahoo Finance reports. Let us remind you that the chairman of the Fed testified before the Senate Banking Committee on Tuesday.
The probability of an increase in interest rates is increasing
According to David Carter, CEO of JP Morgan Bank in New York, the Fed opened the door to more interest rate hikes on Tuesday and did not close them on Wednesday. Carter said yes, there is a lot of uncertainty about when the rate hike will end. Even in a marathon, you know it’s over after 26.2 miles, but no one knows where this finish line is or if there’s another big hill.
Financial markets now estimate the probability of a 50 basis point (0.5 percent) interest rate hike in March at 77.9 percent, while their expectations at the start of the current week were around 30 percent, Reuters reports, according to FedWatch data.
Emerging market stocks lost about one percent of their value. MSCI, the broadest index of Asia-Pacific shares outside Japan, ended 1.4 percent lower, while Japan’s Nikkei gained 0.48 percent. The dollar index rose 0.04 percent, while the euro fell 0.02 percent to $1.0545.