LONDON, Feb 26 — European stock markets pulled back today after sharp losses in Asia overnight due to concerns over the prospect of high inflation and interest-rate rises that could hamper economic recovery from the coronavirus pandemic.
The dollar rose against its main rivals ahead of Congress later today voting on US President Joe Biden’s enormous US$1.9-trillion (RM7.6 trillion) economic rescue package.
Oil prices fell after striking 13-month peaks yesterday on keen demand.
Vaccine rollouts, slowing Covid infection rates and Biden’s stimulus package are proving to be a double-edged sword for traders as they weigh the much-needed return to pre-pandemic life with the prospect that prices could rise, possibly sharply.
There is a worry that surging inflation could threaten one of the key pillars of the rally on world markets from their March nadir — record-low borrowing costs.
Alarm bells have been ringing for weeks as the yield on benchmark 10-year US Treasuries climbed to one-year highs as investors moved out of the safehaven government bond.
“Yields have been rising for some time but have clearly accelerated recently and investors are nervous about the prospect of higher inflation and less central bank support,” Craig Erlam, market analyst at Oanda trading group, told AFP.
Yields have advanced around the world, from New Zealand and Australia to France, Germany and Japan.
Soaring US bond yields sparked a hefty overnight sell-off on Wall Street—led by the tech-heavy Nasdaq’s 3.5 per cent plunge.
Asia followed suit today, suffering one of its worst sessions since the dark days of last March’s collapse.
Tokyo led the way, tanking four per cent, while Hong Kong, Mumbai and Taipei were more than three per cent off and Seoul shed 2.8 per cent.
Sydney and Shanghai also lost more than two per cent.
In Europe, London, Paris and Frankfurt all tumbled more than one per cent at the open, before trimming losses.
Powell reassurance
The global sell-off comes despite reassurances from Federal Reserve chief Jerome Powell that US interest rates will not rise for the foreseeable future.
“Investors are clearly spooked despite the best efforts of Jerome Powell,” Erlam said.
“Policymakers may be comfortable with yields rising as it reflects the view that the economy is heading for a powerful recovery, but investors are less enthusiastic,” he added.
On the corporate front and at the end of another busy earnings week, shares in European airlines giant IAG rallied four per cent despite the owner of British Airways and Iberia diving into a record 6.9-billion-euro loss on Covid fallout.
Analysts said the worst could be over for the battered aviation sector.
Key figures around 1110 GMT
London — FTSE 100: DOWN 0.4 per cent at 6,625.38 points
Frankfurt — DAX 30: DOWN 0.1 per cent at 13,861.64
Paris — CAC 40: DOWN 0.3 per cent at 5,765.63
EURO STOXX 50: DOWN 0.4 per cent at 3,671.84
Tokyo — Nikkei 225: DOWN 4.0 per cent at 28,966.01 (close)
Hong Kong — Hang Seng: DOWN 3.6 per cent at 28.980.21 (close)
Shanghai — Composite: DOWN 2.1 per cent at 3,509.08 (close)
New York — Dow: DOWN 1.8 per cent at 31,402.01 (close Thursday)
Euro/dollar: DOWN at US$1.2113 from US$1.2166 at 2200 GMT
Pound/dollar: DOWN at US$1.3928 from US$1.4141
Euro/pound: UP at 86.98 pence from 86.04 pence
Dollar/yen: UP at 106.39 yen from 105.87 yen
Brent North Sea crude: DOWN 0.8 per cent at US$66.36 per barrel
West Texas Intermediate: DOWN 0.9 per cent at US$62.98 per barrel — AFP
