World stock markets mostly fell on Friday after the previous day’s rally, as traders mulled central bank moves to combat soaring inflation, while navigating a COVID-19 infection spike that threatens an already fragile economic recovery.
Just after midday in the eurozone, Paris stocks dropped 0.9 per cent and Frankfurt fell 0.7 per cent following earlier Asian losses. London equities rose 0.2 per cent one day after the Bank of England delivered a shock interest rate hike to counter decade-high UK inflation.
Oil prices, however, tanked two per cent on renewed demand fears linked to the Omicron COVID variant.
European indices had rallied on Thursday after the US Federal Reserve and European Central Bank laid out inflation-fighting plans and the BoE hiked interest rates from a record low to 0.25 per cent.
Asia had also leapt after the Fed this week plotted a more hawkish path by speeding up the taper of its pandemic stimulus and signalled policymakers expect a number of interest rate hikes in 2022 and beyond as the economy rebounds.
Bank calls ‘remove uncertainty’
“European markets are (mostly) following their US and Asian counterparts lower today, with the initial positive reaction in the face of Fed and BoE monetary tightening faltering as we head into the weekend,” said IG analyst Joshua Mahony. “A week dominated by central banks draws to an end, removing much of the uncertainty that has plagued sentiment of late. While Omicron provides an ongoing risk, the perception that this wave could be short-lived does provide the basis for traders to buy into stock weakness.”
While Omicron provides an ongoing risk, the perception that this wave could be short-lived does provide the basis for traders to buy into stock weakness- IG analyst Joshua Mahony
The Fed news on Wednesday was met with a markets rally as investors welcomed an end to the some of the uncertainty that had long plagued markets.
OANDA analyst Craig Erlam said a gauge of possible rate hikes “was towards the hawkish end of expectations, something investors welcomed with open arms”. He added: “It’s not the possibility of inflation, rather the prospect of it rising out of control that’s prompting the move, and clearly, investors fear inflation far more than modest tightening. As they should.”
A BoE rate hike and the ECB’s plan to taper its financial support – but extending other help – were met with similar upbeat responses in Europe.However, Wall Street retreated on Thursday as investors took stock of the new policy, with tech firms – which are more susceptible to higher borrowing costs – taking the brunt of the selling, sending the Nasdaq diving.
Tokyo stocks closed lower on Friday on profit-taking. Concluding a two-day meeting, the Bank of Japan decided to partially extend its special loan programme to support companies hit by the pandemic but decided to scale back other measures, while keeping its key monetary policy unchanged.