‘”Ž† •Šƒ”‡• •Ž‹’ ƒ•
JOHANNESBURG - World shares slipped and the Dollar and bond yields jumped yesterday after the US Federal Reserve (Fed) shifted the outlook on its tightening from short and sharp to long and high, and as Europe braced for Britain’s biggest rate hike in decades.
European shares opened nearly 1 per cent lower after even heavier falls in Asia and as a 1.25 per cent surge in the Dollar marked its biggest rise since late September.
Investors had initially been cheered that the US Fed at least opened the door to a slowdown in the pace of hikes after raising interest rates 75 basis points to 3.75-4.0 per cent, by noting that monetary policy acted with a lag.
But Chair Jerome Powell soured the mood by saying it was ‘very premature’ to think about pausing and that the peak for rates would likely be higher than previously expected.
Rate
“The Fed is now more comfortable with taking smaller rate increases for a longer period than delivering larger increases now,” said Brian Daingerfield, an analyst at NatWest Markets. “The tightening cycle is officially now a marathon, not a sprint.”
Futures were split on whether the Fed would move by 50 or 75 basis points in December, and nudged up the top for rates to 5.0 per cent-5.25 per cent likely by May.
They also imply little chance of a rate cut until December 2023.
“We see the risks to our peak funds rate forecast of 4.75 per cent-5 per cent as tilted to the upside,” analysts at Goldman Sachs wrote. All this was not what the equity markets wanted to hear and Wall Street fell sharply after Powell’s comments. Asia share markets fell 1.6 per cent overnight