Global stock markets retreated Thursday after the Federal Reserve sparked a major sell-off on Wall Street by signaling it may unwind economic stimulus more aggressively than investors had expected.
Some markets in Asia fell sharply, with Japan’s benchmark Nikkei and Australia’s S&P/ASX 200 sliding 2.9% and 2.7%, respectively. South Korea’s Kospi (KOSPI) slid 1.1%. Stocks in China were flat.
European stocks fell at the open. In afternoon trading, France’s CAC 40 (CAC40) was down 1.3%, while Germany’s DAX 30 (DAX) declined 1.1%. The FTSE 100 (UKX) dropped 0.7% in London.
A strong US economy and higher inflation could lead the Federal Reserve to hike interest rates faster than investors had anticipated, minutes from the central bank’s December meeting showed. Some policymakers also want to step on the brakes by shrinking the Fed’s balance sheet soon after rates begin to move higher.
“Overall, faster tapering, earlier rate hikes and earlier balance sheet reduction are all on the cards if the economy and asset markets allow,” wrote Societe Generale strategist Kit Juckes in a research note. “The bigger longer-term question is whether there is enough stickiness to the inflation rate, to force the [Fed] to tolerate a deeper equity market correction than they might have in recent years before changing tack.”
The Dow (INDU), which had just hit a record high, closed down 1.1%, or 393 points, on Wednesday after the Fed minutes were released. The S&P 500 (SPX), the broadest index tracking US equities, finished 1.9% lower, marking its worst day since late November.
All three major US indexes continued lower in early trading Thursday, falling by about 0.5%.
Tech stocks were hit particularly hard during Wednesday’s session, with the Nasdaq Composite (COMP) dropping 3.3%, its worst performance since February 2021. When yields on government bonds rise, riskier investments become less attractive. The valuation of tech companies is also tied to future earnings, which look bleaker when inflation and higher rates are taken into account.
Some global tech companies also came under pressure on Thursday. In Hong Kong, gaming company Bilibili (BILI) and short video platform Kuaishou shed about 6% and 4%, respectively. Germany’s SAP (SAP) shed 2.7% in early trading.
Omicron is also looming over global markets. The coronavirus variant has led to a rapid increase in infections and fresh restrictions across the world, including a major lockdown in China and a weekend curfew in the Indian capital of New Delhi. India’s benchmark S&P BSE Sensex (SENSEX) Index dipped 1% Thursday.
Investors have fretted for weeks over what the highly contagious strain would mean for global business and markets, while also bracing for the prospect of interest rate hikes in the coming months.
— Anneken Tappe contributed to this report.