European stocks fell on Thursday as a sell-off that began with high-value technology stocks accelerated after the US Federal Reserve signaled a quick end to its pandemic-era monetary stimulus.
The regional Stoxx 600 index fell 1.1 percent, London’s FTSE 100 fell 0.6 percent and Germany’s Xetra Dax fell 1.1 percent.
Stoxx reached a record close on Wednesday as traders responded to a faint fear of the Omicron coronavirus variant by shifting money from quarantine users in the technology sector to banks and energy groups that are heavily represented in European indices.
All sectors of Stoxx fell on Thursday morning. While its technology sub-index was the worst, industrial groups fell 1.2 percent and basic materials companies 0.7 percent.
The move came after minutes from the last Federal Reserve meeting revealed that central bank officials, which has boosted financial markets since March 2020 with a massive bond-buying program and record low interest rates, largely agreed that time to accelerate withdrawal of this support.
“Markets are waking up to the end of easy money,” said Olivier Marciot, manager of multi-asset investment at Unigestion.
“We have had a lot of quantitative easing and monetary support, which creates an environment in which all assets tend to thrive, and when you remove that, it’s the other way around,” he added. “It’s a correlation shock where everything breaks down at the same time.”
The Fed minutes also revealed that the world’s most influential central bank may have to raise interest rates “sooner or faster” than officials initially expected to tame rising inflation.
The Wall Street-focused Nasdaq Composite stock index fell 3.3 percent on Wednesday. worst session from February 2021. Low interest rates may justify higher stock prices because they make companies ’future earnings more valuable, with this effect being most increased for technology and other early-stage companies.
But the prospect of higher borrowing costs has also hit all U.S. markets. The Dow Jones industrial average, which hit a record high earlier Wednesday when trading was dominated by the theme of economic recovery, closed 1.1 percent lower.
U.S. Treasury prices also fell in response to Fed signals that it will now move on to discussing how to reduce its balance sheet, which has more than doubled to just under $ 9 billion since early 2020 as the central bank aggressively increased its shares of treasury and mortgage-backed securities.
Yield on 10-year treasury bills, which is the opposite of its price, rose 0.02 percentage points to 1.725 percent. This reference debt yield, which affects the cost of borrowing and valuing assets around the world, climbed from about 1.63 percent earlier this week.
European government bonds were swept away after the Fed. German 10-year bond yields climbed to minus 0.05 percent, the highest level since May 2019. The riskier eurozone debt was also hit, and Italy’s 10-year yield rose above 1.3 percent for the first time since July 2020. .
In Asia, Japan’s Nikkei 225 finished about 2.9 percent lower and China’s CSI 300 fell 1 percent. Hong Kong’s Hang Seng index, however, rose 0.7 percent as large declines in Chinese technology stocks reversed.
Additional report by Tommy Stubbington
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