Wed. Jan 26th, 2022

European equities fell on Friday, following declines in Asian stock markets, as traders saw signs of persistently high US inflation and the prospect of impending monetary policy tightening.

The local Stoxx 600 Europe index fell 0.7 percent in morning trades and London’s FTSE 100 lost 0.1 percent. In Hong Kong, the Hang Seng stock fell 0.2 percent lower, while Japan’s Nikkei 225 lost 1.3 percent.

Inflation figures revealed on Wednesday that US consumer prices have risen by an annual 7 percent in December, their fastest pace in nearly four decades. Separate data on Thursday showed that US wholesale prices rose at an annual average of 9.7 percent in December.

Lael Brainard, US President Joe Biden’s nominee for the position of Federal Reserve Vice President, a confirmation hearing said later Thursday that “taking our actions on the monetary policy front that I trust will bring down inflation”.

Traders have struggled in recent days with how to determine the inflation outlook, with US and European equities initially recovering after Wednesday’s CPI data in a burst of relief that the 7 per cent annual price increase was not worse.

“The markets are in this transition period, which of course always goes with some doubt,” said Geraldine Sundstrom, managing director and portfolio manager at Pimco.

“We are moving from a time when inflation was seen as transient and central banks would remain accommodating as far as the eye could see to a time when it is natural to expect some removal of monetary accommodation, but how much does it should be, is the big question mark for everyone, ”she added.

Wall Street shares Thursday’s session concludes sharply lower, with the technology-heavy Nasdaq Composite down 2.5 percent and the broad-based S&P 500 index down 1.4 percent. In a sign that traders are withdrawing from assets that are considered higher risk and switching to investments with more defensive characteristics, the S & P’s utilities and consumer stack sectors were the only two promoters.

Traders expect the US Federal Reserve to increase borrowing costs, which affect interest rates around the world, by three to four times in 2022 to about 1 percent, after these rates fell close to zero in the spring of 2020.

In government debt markets, the yield on the U.S. 10-year treasury note, which is reversing its price, added 0.03 percentage points to 1.74 percent. The return on the two-year treasury note, which closely follows interest rate expectations, also added about 0.03 percentage points to 0.93 percent.

The 10-year German Bund yield added 0.02 percentage points to minus 0.07 percent.

In currencies, the dollar index, which measures the dollar against six others, lost 0.1 percent on Friday.

Moscow’s benchmark Moex stock index fell more than 2 percent this week, indicating that Russian geopolitical tensions have begun to seep into financial markets.

In commodities, the price of Brent crude oil, the oil benchmark, added 0.7 percent Friday to $ 85.05.

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