Fourth Fed rate hike prompts global stock sell-off

Global stocks fell in reaction to the US Federal Reserve’s monetary tightening, with US futures forecasting further declines on Thursday.

Global stock markets tumbled in reaction to the US Federal Reserve’s fourth rate hike of 2018, with European and Asian equities falling on Thursday following Wall Street’s lead with the S&P 500 sliding 1.54%.

Declining US stocks precipitated the pan-European Stoxx 600 to fall by 1.4% - hitting a 25-month low. Elsewhere in Europe, the German Dax and French CAC 40 both slid 1.5%, with the FTSE 100 down 1.6% on Thursday – hitting a 28-month low.

Meanwhile in Asia, the Japanese Topix fell 2.5% following the Fed’s rate rise and the pan-Asian index for external Japanese equities slid 1.2%.

‘The Fed’s decision to push ahead with its fourth hike of 2018, but shave 25bp off its profile for expected hikes, has seen the US 2-10 year Treasury curve flatten further and risk assets suffer,’ ING strategist Chris Turner said.

‘The dominant reaction in financial markets has been one of caution, with price action largely driven by equities. Here investors are still overweight both US equities and the dollar,’ he added.

US futures signal further declines to come

On Thursday morning, US futures continued to fall after the Fed disobeyed President Donald Trump by raising rates.

The Dow Jones Industrial Average futures slid 123 points at 4:15am ET, with S&P 600 and Nasdaq futures also down, sending a strong signal to investors that further stock market declines are on the cards once markets open on Thursday.

The Fed’s Chairman Jerome Powell also made it clear that the central bank has no plans of slowing the pace of subsequent rate hikes after completing their fourth increase of the year.

‘I think that the run-off of the balance sheet has been smooth and has served its purpose, Powell said in a recent news conference. ‘I don’t see us changing that.’

Dollar down

US equites weren’t the only market to be hit hard by recent rate hike, with the US dollar falling 0.3% in the wake of the central bank’s decision. Meanwhile, the euro, pound and Japanese yen all witnessed slight climbs.

Sterling could see its slights gained eroded if the Bank of England decides to raise interest rates at midday on Thursday, though many analysts expect the UK central bank to leave rates unchanged.

‘Today’s BoE rate meeting is unlikely to influence GBP much given so much uncertainty,’ Turner said.

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European Central Bank meeting

Learn about how the ECB meeting affects interest rates and price stability ahead of the next announcement on 24 October 2019.

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