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The FTSE 100 slid 1.5pc and the FTSE 250 fell 1.7pc, extending losses from Tuesday when a hotter-than-expected US inflation reading raised bets for more aggressive policy tightening in the world’s largest economy and sparked a global equities sell-off.
However, global equity markets are stabilising from the carnage earlier this week caused by hot U.S. inflation data but European investors need to climb a wall of worry for any meaningful near-term recovery.
Policymakers in Europe are caught in a bind as they face the delicate task of balancing unprecedented rate hikes with risks of sharp slowdowns in their economies, which are battling high energy costs.
Asian stocks rose following their worst sell-off in two weeks after US equities rebounded as investors weigh the prospect of large interest rate hikes by the Federal Reserve. The dollar was little changed. Asia’s stockmarkets were steady but fragile on Thursday, a day after their biggest drawdown in three months as investors weighed the risk of the Federal Reserve announcing a 100 basis point interest rate hike next week to tackle sticky inflation.
Benchmarks in Japan and Australia climbed. Shares advanced in Hong Kong as Chinese developers rallied amid reports of increased efforts by officials to arrest a housing slump. US futures climbed after the S&P 500 closed in the green thanks to dip buyers late in the session.
Fed funds futures, which were dumped along with stocks after Tuesday’s stubbornly hot U.S. inflation reading, imply a 37% chance of a 100 basis point rate hike next week and have the benchmark U.S. interest rate about 4.3% by February.
Treasuries were calm in Tokyo trade on Thursday, but the U.S. yield curve is deeply inverted – often a signal of a looming recession – as investors believe that rate hikes through this year and next will take a bite out of future growth.
Two-year yields, which track near-term rate expectations, were steady at 3.7860%, up 22 basis points this week for a seventh straight weekly gain. The benchmark 10-year yield was at 3.4062%.
Later today European trade data is due and Chinese President Xi Jinping meets Russia’s Vladimir Putin in Uzbekistan. Brent crude futures held at $94.04 a barrel. Spot gold, which has slipped as the dollar and U.S. yields have gone up, sat at $1,696 an ounce.
The EU has laid out plans to raise €140bn (£121bn) by capping revenues for non-gas energy suppliers as part of a radical effort to halt the escalating crisis. Ursula von der Leyen, European Commission President, said the funds would come from capping revenues for producers of low-cost power such as renewables and nuclear. Other measures under consideration include a windfall tax on fossil fuel companies and steps to cut energy use to avoid blackouts this winter. However, the bloc has stepped back from an initial plan to cap Russian gas prices amid division among member states over whether such a move would help or harm efforts to secure energy supplies.
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