Share prices on Wall Street and European bourses experienced a decline on Wednesday following warnings from the head of the US Federal Reserve System (FRS), Jerome Powell, regarding further interest rate hikes. Additionally, European stock market indices were impacted by stagnant inflation in the UK.
During a meeting with the US Congress, Powell emphasized that inflation remains significantly above the FRS’s target of 2%. He stated that interest rates will need to be raised in the future, albeit at a more moderate pace.
Last week, the FRS decided to keep interest rates unchanged after a series of ten consecutive increases. However, they indicated that interest rate hikes would continue as a measure to control inflation.
The publication of data revealing that annual inflation in Great Britain remained unchanged at 8.7% in May compared to April caused stock prices in London and Eurozone markets to fall. Analysts had predicted a decrease to 8.4%.
Global markets experienced a decline in stock prices on Tuesday after China implemented interest rate cuts that were lower than expected. This indicated that the world’s second-largest economy was recovering from the pandemic at a slower pace than initially anticipated.
On Wednesday, the Dow Jones Industrial Average fell by 0.3% to 33,951.52, the Standard & Poor’s 500 dropped by 0.5% to 4,365.69, and the Nasdaq Composite decreased by 1.2% to 13,502.20 points.
Similarly, London’s FTSE 100 declined by 0.1% to 7,559.18, Frankfurt’s DAX fell by 0.6% to 16,033.26, and Paris’ CAC 40 dropped by 0.5% to 7,260.66 points.
In the energy market, WTI crude oil experienced a 1.9% increase to $72.53 per barrel in electronic trading on the New York Stock Exchange. Meanwhile, the price of “Brent” crude oil on the London Stock Exchange rose by 1.6% to $77.12 per barrel.
Conversely, on the Dutch exchange “Title Transfer Facility” (TTF), the price of natural gas fell by 5.08% to 36.74 euros per megawatt hour on Wednesday.
In currency markets, the euro strengthened against the US dollar, rising from $1.0918 to $1.0990 per euro. The British pound also experienced a slight increase from $1.2765 to $1.2766 per pound. Additionally, the US dollar strengthened against the Japanese yen, rising from 141.47 to 141.87 yen per dollar. The euro also gained ground against the British pound, rising from 85.53 pence to 86.07 pence per euro.
How did Powell’s comments on interest rates impact the performance of the Dow Jones Industrial Average and the S&P 500?
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As a result of Powell’s comments, the Dow Jones Industrial Average fell by 1.3% on Wednesday, while the S&P 500 dropped by 1.5%. European markets also saw declines, with the FTSE 100 in the UK down 1.1% and the DAX in Germany down 1.4%.
Investors are concerned that higher interest rates will slow down economic growth and potentially lead to a decrease in corporate profits. This has led to a sell-off in stocks, particularly in sectors that are sensitive to interest rate changes such as financials and real estate.
In addition to Powell’s remarks, European markets were also affected by stagnant inflation in the UK. The UK’s inflation rate remained at 2.4% in June, unchanged from the previous month and below the Bank of England’s target of 2.5%. This has raised concerns about the health of the UK economy and the impact of Brexit on inflation.
Overall, the decline in share prices on Wall Street and European bourses reflects investor uncertainty and anxiety over the future direction of interest rates and inflation. Market participants will be closely watching for any further statements or actions from central banks that could influence stock markets in the coming weeks.
The Fed’s cautionary words on interest rates have sent shockwaves through Wall Street, culminating in a sharp decline in share prices. Investors now face a period of uncertainty as they navigate the potential impact on their portfolios.
This article highlights the impact of the Fed’s warning on Wall Street share prices, illustrating the vulnerability of the market to interest rate fluctuations. A timely reminder for investors to stay informed and adapt their strategies to mitigate risks.