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Markets drop as central banks hike rates

·3-min read

Stock markets retreated on Thursday after the US Federal Reserve and central banks in Europe unleashed more hefty interest rate hikes that aim to stomp out inflation but have raised fears of recession.

On Wall Street, the tech-rich Nasdaq led the major indices lower, falling 1.4 percent a day after the Fed's aggressive rate hike sent equities tumbling the previous day.

European markets finished lower, with London's FTSE 100 down 1.1 percent after the Bank of England raised its policy rate again and signaled that the UK entered recession in the current quarter.

The BoE's 0.5-percentage-point hike was smaller than the Fed's third consecutive 0.75-point increase.

"Today has seen another bout of downside for stock markets throughout Europe and the US, with geopolitical and economic concerns providing a drag on risk assets once again," Joshua Mahony, senior market analyst at online trading platform IG.

"On a week dominated by central banks, it was always going to be difficult to envisage a scenario where traders emerge with a positive outlook," he added.

The world's major central banks are rushing to ramp up rates to dampen red-hot consumer prices, but traders, and many economists, fear rising borrowing costs will trigger a global downturn.

While the Fed's latest super-sized move was widely expected, there was some surprise at the central bank's forecast that borrowing costs would likely be held above four percent throughout next year.

Fed Chair Jerome Powell reiterated his determination to focus on bringing down inflation -- which is at a four-decade high -- and accepted that the campaign would hit Americans hard.

"What hit home for market participants yesterday is that the Fed, steered by Fed Chair Powell, really means business now in restoring price stability, and if that means a hard landing for the economy, so be it," said analyst Patrick O'Hare.

- Japan bucks the trend -

Switzerland and Norway also made hefty interest rate hikes on Thursday, two days after a massive increase in Sweden.

In Asia, Indonesia and the Philippines also tightened monetary policy but the Bank of Japan bucked the global trend as it left its status quo in place.

The dollar pared back gains after rising against other major currencies following the Fed's rate decision.

The British pound briefly dived to a new 37-year low at $1.1212 but recovered after the BoE announcement.

The euro touched a new 20-year dollar low of $0.9809.

The yen, which has been plummeting due to the policy gap between the US and Japanese central banks, clawed back against the dollar after Japan's Finance Ministry said it intervened in the market to support the currency.

- Key figures at around 2030 GMT -

New York - Dow: DOWN 0.4 percent at 30,076.68 (close)

New York - S&P 500: DOWN 0.8 percent at 3,757.99 (close)

New York - Nasdaq: DOWN 1.4 percent at 11,066.81 (close)

London - FTSE 100: DOWN 1.1 percent at 7,159.52 (close)

Frankfurt - DAX: DOWN 1.8 percent at 12,531.63 (close)

Paris - CAC 40: DOWN 1.9 percent at 5,918.50 (close)

EURO STOXX 50: DOWN 1.9 percent at 3,427.14 (close)

Tokyo - Nikkei 225: DOWN 0.6 percent at 27,153,83 (close)

Hong Kong - Hang Seng Index: DOWN 1.6 percent at 18,147.95 (close)

Shanghai - Composite: DOWN 0.3 percent at 3,108.91 (close)

Pound/dollar: DOWN at $1.1252 from $1.1270 Wednesday

Euro/dollar: UP at $0.9839 from $0.9837

Euro/pound: UP at 87.40 pence from 87.29 pence

Dollar/yen: DOWN at 142.35 yen from 144.06 yen

Brent North Sea crude: UP 0.7 percent at $90.46 per barrel

West Texas Intermediate: UP 0.7 percent at $83.49 per barrel