European stocks fell on Friday, following declines in Asian stock markets, with traders assessing signs of still high inflation in the United States and the prospect of an imminent monetary policy tightening.
The regional Stoxx 600 Europe index fell 0.7% in morning trading and London’s FTSE 100 lost 0.1%. In Hong Kong, the Hang Seng stock index fell 0.2%, while Japan’s Nikkei 225 fell 1.3%.
Inflation figures showed on Wednesday that consumer prices in the United States rose 7% a year in December, their fastest pace in nearly four decades. Separate data released Thursday showed wholesale prices in the United States rose at an annual rate of 9.7% in December.
Lael Brainard, US President Joe Biden’s candidate for Deputy Chairman of the Federal Reserve, said Thursday during a confirmation hearing that “we are taking action on the monetary policy front which I am convinced , will reduce inflation “.
Traders have struggled to gauge the outlook for inflation in recent days, with US and European stocks initially rallying after Wednesday’s CPI data, relieved that the 7% annual price rise was not worse.
“The markets are in this period of transition which, of course, always comes with some doubts,” said Geraldine Sundstrom, Managing Director and Portfolio Manager at Pimco.
“We are moving from a time when inflation was seen as transitory and central banks would remain accommodating as far as the eye can see, to a time when it is natural to expect some removal of monetary accommodation, but what should be the big question marks for everyone, ”she added.
Wall Street stocks closed Thursday’s session sharply lower, with the tech-heavy Nasdaq Composite falling 2.5% and the broad S&P 500 index down 1.4%. As a sign that traders were pulling back from assets perceived to be riskier and turning to investments with more defensive characteristics, the utilities and consumer staples sectors of the S&P were the only two to advance.
Traders expect the U.S. central bank to increase borrowing costs, which affect interest rates around the world, three to four times in 2022 to around 1%, after lowering these rates to close to zero in spring 2020.
In government debt markets, the yield on the 10-year US Treasury bill, which moves inversely to its price, added 0.03 percentage point to 1.74%. The yield on the two-year Treasury bill, which closely tracks interest rate expectations, also added about 0.03 percentage point to 0.93%.
The 10-year German Bund yield added 0.02 percentage point to minus 0.07%.
In currencies, the dollar index, which measures the greenback against six others, lost 0.1% on Friday.
Signaling that Russian geopolitical tensions were starting to seep into financial markets, Moscow’s benchmark Moex stock index fell more than 2% this week.
In commodities, the price of Brent crude, the benchmark for oil, rose 0.7% on Friday to $ 85.05.