Hawkish Fed minutes weigh more risky assets

A trader is working on the floor of the New York Stock Exchange (NYSE) at the start of trading on Monday after Friday’s sharp decline in global equities due to fears of the new omicron Covid variant on December 20, 2021 in New York City.

Spencer Platt | Getty pictures

LONDON ̵[ads1]1; Global markets turned down on Thursday as persistent inflationary pressures and fears of a faster-than-expected rise in US interest rates weighed on more risky assets.

Shares in the Asia-Pacific region fell sharply on Thursday, following in the footsteps of the US overnight. The technology-heavy Nasdaq fell more than 3% to reach its biggest one-day loss since February, while the Dow Jones Industrial Average recorded its first decline in 2022.

European stocks, meanwhile, opened lower on Thursday, prolonging the global downturn. The pan-European Stoxx 600 fell around 1.4% during early morning deals, with major stock markets and all sectors in negative territory.

Teknikk shares led the losses, down around 3%, with the German software company Nemetschek falling over 6%.

It comes at a time when market participants are already deeply concerned about the rapid global spread of the highly contagious omicron Covid variant, with several countries reporting record daily infections in the last 24 hours.

In Japan, the Nikkei 225 fell by about 2.9% as the attempt to get out of technology stocks continued to hit high-profile companies. Japan’s Sony Group was last seen down 6.8%.

Australian equities also saw large losses as the S & P / ASX 200 fell 2.7%. In mainland China, the Shanghai composite fell 0.25% while the Shenzhen component fell 0.1%.

MSCI’s broadest index for Asia-Pacific equities outside Japan traded 1.3% lower.

‘Dwelling concerns’ about the Fed

The losses come after minutes from the Federal Reserve’s central December meeting were published on Wednesday. The summary showed that the central bank was discussing reducing the balance in another move to aggressively repel its simple monetary policy from the pandemic.

The Fed’s plan to reduce the number of government bonds and mortgage-backed securities it has comes as it is already stepping down its bond purchases and is set to raise interest rates after the downsizing has ended.

“We have no more information on what the Fed thinks than we did several weeks ago,” Brian Nick, investment strategist at Nuveen, told CNBC’s “Squawk Box Europe” on Thursday.

“I think at the time what we understood was that the Fed on average expected to raise interest rates three times in 2022, I do not think that the outlook has changed or that it has gradually become more hawkish since then. But I think maybe “Investors, now that we’re in the new year, are focusing more on that,” Nick said.

“We did not see much reaction after the meeting itself, we see one now in terms of the steeper yield curve, a little stronger dollar, but I think only persistent concerns about the Fed can start to move a little too fast by shrinking the balance and tightening for a lot this year, “he added.

“If these concerns are creeping in, and right now I think they are concerns, not alarms, you can see valuations pushed across the board in the stock market that will tend to favor lower valued, cheaper valued companies.”

The 10-year US government interest rate peaked at 1.7% after the publication of the minutes. On Thursday, it traded at 1.7317% around 03:35 ET. The yield moves in reverse to prices.

Elsewhere, oil prices lost ground Thursday morning. International benchmark Brent oil futures traded at $ 80.32 per barrel, down 0.6%, while US West Texas Intermediate futures stood at $ 77.38, down nearly 0.65%.

Bitcoin and other cryptocurrencies also fell on Thursday. Bitcoin was trading at just under $ 43,200 at 2:59 AM ET, down almost 7% from the previous 24 hours, according to CoinDesk data. It fell as low as $ 42,503.88 in the last 24 hours, the lowest level in more than a month.

Other cryptocurrencies also fell. Ether dropped almost 10% to $ 3,452.58

– CNBC’s Eustance Huang, Jeff Cox and Arjun Kharpal contributed to this report.

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