Markets digesting the rising possibility of an even more aggressive monetary tightening in the US
Rising geopolitical tensions surrounding Ukraine coupled with another hawkish message from the Fed pushed Wall Street indexes lower overnight. Lael Brainard indicated the central bank could take a more aggressive approach to its tightening policy (including a rapid balance sheet runoff), while Daly said that the case for a 50 basis-point interest rate hike has grown. As a result, the Nasdaq Composite led declines, losing 2.26%, while the Dow Jones and the S&P 500 gave up 0.8% and 1.26%, respectively.
Following suit, Asian equity markets slipped on Wednesday, digesting the rising possibility of an even more aggressive monetary tightening in the United States in the months ahead. Adding to investor worries, Deutsche Bank warned that a US recession is ahead. The MSCI’s broadest index of Asia-Pacific shares outside Japan skidded 1.4%, retreating from five-week highs seen a day earlier. Japan’s Nikkei 225 gave up 1.58%.
In Europe, equity markets opened little changed, with bearish bias prevailing in early deals. The pan-European Stoxx 600 slipped 0.3% while US stock index futures were little changed in pre-market trade after a sell-off during the regular session. In his latest comments, the ECB Vice President Luis de Guindos said that the financial stability impact of the war has so far been relatively contained in the Eurozone.
Meanwhile, the dollar rallied to fresh nearly two-year highs around 99.75 as the yield on 10-year Treasury notes jumped to fresh long-term highs of 2.56% amid the Fed’s hawkishness. Now, the focus of traders shifts to the minutes from the Fed’s last policy meeting. Should the event add to dollar’s bullishness, the USD index could refresh May 2020 highs, but a decisive break above 100.00 looks unlikely at this stage.
