Stocks mixed as rate hike worries return

F.P. Report

LONDON: Major stock markets diverged Thursday as investors bet on whether the Federal Reserve would keep raising US interest rates to combat stubbornly-high inflation.

Eurozone indices were higher in early afternoon deals despite data showing the bloc entered recession at the start of the year.

Asian equities closed mixed, while the dollar weakened against main rivals and oil prices gained.

Tokyo finished down as the yen bounced on data showing Japan’s economy expanded more than initially thought in the first quarter.

Market watchers were taken by surprise this week by rate hikes from the Australian and Canadian central banks. With the pair still concerned by elevated inflation, there is concern that the Federal Reserve could prolong its tightening at its policy meeting next week, heaping more pressure on a struggling global economy.

“Canada and Australia don’t often have a central role in moving the markets but the decision by both countries’ central banks to resume rate hikes this week has reverberated through the financial system and helped stoke fears about sticky inflation,” said AJ Bell investment director Russ Mould.

“Much of the narrative sustaining the uneven if material rally in stocks this year has been that the battle with inflation is nearly won by the central banks.

“If the Federal Reserve follows the lead of its Australian and Canadian counterparts then this could be badly undermined and the next Fed decision is now just a week away,” Mould added.

The Reserve Bank of India held rates Thursday, as expected.

Equities have enjoyed a broadly healthy run higher this month with data suggesting the US economy is holding up after 10 straight rate hikes.

By contrast, weak trade figures out of China as well as subdued German industrial production have dampened sentiment.

Wall Street’s tech firms, which are susceptible to higher borrowing costs, took the heaviest hit Wednesday, sending the Nasdaq down more than one percent.

Observers said the People’s Bank of China could announce a rate cut as early as this month, having this week asked major lenders to lower their deposit rates.

And reports last week said officials were looking to ease some rules in the property sector, where a number of firms are straining under the weight of massive debts. (APP)