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LONDON: European stocks fell sharply again on Friday as concerns over a sudden halt to central bank stimulus and rising tensions between Western powers and Moscow led to one of the worst starts to a year for investors. global stock markets.
Strong Apple earnings buoyed struggling US and tech markets, but traders struggled to draw the line under a global selloff that has now taken firm root.
The pan-European STOXX 600 fell 1.5% in morning trade, on track for its fourth consecutive weekly decline, while US futures pointed to more crimson screens on Wall Street later as well.
The main MSCI World Index of 50 countries is now down more than 8.1% for the month, which will be its worst January since the year of the global financial crisis in 2008.
The dollar, meanwhile, is on course for its best week in seven months on bets that US interest rates could now rise as much as five times this year.
“With the Federal Reserve looking a lot more hawkish, it’s rattled the markets,” said Jeremy Gatto, multi-asset portfolio manager at Unigestion in Switzerland.
“Markets can live with rate hikes, but the main question remains around the balance sheet,” he added. Markets have been buoyed by all the stimulus measures put in place during the COVID-19 crisis, “so if that starts to reduce liquidity, that’s a game changer.”
The Fed signaled this week that it would likely raise rates in March, as widely expected, and reaffirmed its intention to end its pandemic-era bond purchases that month before launching a cut. significant amount of its assets.
The prospect of faster or bigger US interest rate hikes and a possible withdrawal of stimulus took the dollar to a 20-month high of $1.1119 per euro and 115.50 yen – near a year-to-date high of 116.35 yen.
In the major government bond markets that drive global borrowing costs, benchmark 10-year US Treasury yields rose to 1.84% from their US close of 1.80% on Thursday. The two-year yield, which is even more sensitive to rate hike expectations, touched 1.22%, after starting the year at around 0.75%.
European bond yields also rose further. Germany’s 10-year yield, the Eurozone benchmark, rose more than half a bp to -0.02%, although it hasn’t quite managed to break through the breakout just yet. zero threshold.
The focus was also on Italy, where bond yields rallied around 4 basis points after a late afternoon rally on Thursday as its parliament struggled to elect a new president.
Oil prices remained elevated, poised for their sixth weekly gain, amid tight supply fears as major producers continue their policy of limited production increases amid rising fuel demand .
Brent crude futures climbed 57 cents, or 0.6%, to $89.91 a barrel, just below $91.04 hit earlier in the week, the highest level since October. 2014.
A sixth week of gains will also mark the longest weekly winning streak for Brent since October last year, when Brent prices climbed for seven weeks while US WTI gained for nine.
This year, prices have risen by around 15% amid geopolitical tensions between Russia, the world’s second largest oil producer and Europe’s main natural gas supplier, and the West over Ukraine, as well as than threats against the United Arab Emirates from the Houthi movement in Yemen. which have raised concerns about the energy supply.
“Where Brent crosses the $90 level, we see some selling out of a sense of accomplishment, but investors start buying again when prices drop a bit as they remain cautious about possible supply disruptions due to rising geopolitical tensions,” said Tatsufumi Okoshi, senior economist. at Nomura Securities.
“The market expects supply to remain tight as OPEC+ is expected to maintain the current policy of gradually increasing production,” he said.
The market is focused on a February 2 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its Russian-led allies, a group known as OPEC+. It is likely to stick to a planned increase in its oil production target for March, several sources at the group told Reuters.