LONDON, Nov 10 — Wall Street indices bounced but European stock markets fell today as investors digested warnings by central bank chiefs that the battle against inflation was not over.
US stocks opened higher after falling the previous day on the back of Federal Reserve Chair Jerome Powell saying that the US central bank “will not hesitate” to raise interest rates again if necessary.
European markets remained down in afternoon deals, however, as European Central Bank President Christine Lagarde said there will probably be a “resurgence” of inflation after it slowed sharply last month.
Speaking at a Financial Times event, Lagarde also said that the ECB will not start cutting rates for at least “the next couple of quarters”.
Data showing the UK economy stalled in the third quarter also weighed on London’s FTSE 100 index.
Both the Fed and ECB paused their rate-hike campaigns at their last meetings as consumer price rises have slowed, but they have suggested they would stay higher for longer as inflation remains above their two-per cent targets.
Equities had been rallying since last week after Fed officials hinted that their long-running tightening cycle may be at an end.
But Powell told an International Monetary Fund conference Thursday that progress toward reaching two-per cent inflation was “not assured”.
“If it becomes appropriate to tighten policy further, we will not hesitate to do so,” he said.
He added that officials were aware of the need not to overtighten, which many fear could tip the world’s top economy into recession.
The Fed decision last week to hold rates came as they acknowledged soaring Treasuries — 10-year yields hit a 16-year high recently — were acting as a substitute for rate hikes.
“I don’t believe what Powell said was a shock but I do feel the general consensus amongst investors is that interest rates are at or close to their peaks, and their focus is turning to the timing of rate cuts,” said Walid Koudmani, chief market analyst at XTB online trading.
“The fact the Fed has sent a clear signal that the conversation for rate cuts is far too premature, this has given some investors a bit of a reality check today,” Koudmani said.
US government bond yields rose yesterday but traders said it may have been linked to a ransomware attack on the US arm of China’s largest bank, the ICBC, which disrupted the US Treasury market.
“Some commentators argue that that, rather than weak demand, was behind the relatively poor US government bond auction (that took place yesterday,” said Richard Flax, chief investment officer at Moneyfarm.
The yield on the 10-year Treasury note eased today. — AFP
