Wall Street stocks sold off sharply on Thursday as Switzerland and the UK joined a global rush to raise interest rates, following a sharp boost to borrowing costs by the US Federal Reserve as central banks attempt to tame high inflation.
The S&P 500 slid 3.3 per cent, in a move that put the broad gauge on track for a weekly fall of more than 6 per cent — its biggest decline since March 2020. The declines have accelerated in recent days as pessimism about the global economic outlook has spread, with many investors warning central bank action could stamp out the recovery.
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In a sign of the darkening outlook, almost every stock in the S&P 500 index declined on Thursday, with losses pushing the share prices of hundreds of companies in the US down to new 52-week lows. The technology-heavy Nasdaq Composite tumbled 4.1 per cent. The Iseq weakened by almost 2 per cent.
The S&P had closed the previous session 1.5 per cent higher after the Fed raised its main interest rate by 0.75 percentage points, with chair Jay Powell saying he expected rises of this magnitude to be relatively uncommon.
However, in the latest sign of how central banks are stepping up their efforts to tackle scorching inflation, the Fed’s decision was followed on Thursday by the Swiss National Bank raising its policy rate for the first time in 15 years — topping forecasts with a 0.5 percentage point increase.
“The SNB has for so long been in the ultra-dovish camp,” said Francesco Pesole, a currency strategist at ING. “If even they are hiking, it’s sending a message to markets that central banks are looking at this summer as their last chance to do something about inflation before we hit a global slowdown.”
The Swiss franc rose 2 per cent against the euro on Thursday to €0.98.
Europe’s regional Stoxx 600 share index, which had rallied on Wednesday after the European Central Bank (ECB) promised a new mechanism to support weaker euro zone nations from rising interest rates in the bloc, fell 2.7 per cent.
Sterling added 0.8 per cent against the dollar, bouncing back from earlier declines. It also gained against the euro, trading at 85.3 pence.
The Bank of England (BOE) on Thursday lifted its benchmark interest rate by 0.25 percentage points to 1.25 per cent.
Ahead of the announcement, investors had been divided over whether they expected a quarter-point or half-point rise.
UK government debt prices were down after the decision, with the 10-year gilt yield up 0.05 percentage points on the day at 2.52 per cent, as the BOE warned UK inflation might rise above 11 per cent before the end of the year. Bond yields rise when prices fall.
Germany’s 10-year Bund yield rose 0.06 percentage points to 1.69 per cent, trimming a more sizeable move earlier in the day.
The ECB had said on Wednesday that it would “accelerate the completion of the design of a new anti-fragmentation instrument” to support the euro zone’s most indebted nations.
“They have a plan to develop a plan, but the market wants more detail,” said Willem Sels, global chief investment officer at HSBC’s private bank.
“It was good news that the ECB reacted,” said Nadège Dufossé, head of cross-asset strategy at fund manager Candriam, “but we have nothing new”.
Elsewhere, the yield on the 10-year US Treasury note, which underpins global debt pricing, slipped 0.04 percentage points to 3.35 per cent. — Copyright The Financial Times Limited 2022
