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World shares track Wall St retreat on interest rate worries

BANGKOK (AP) – World shares were mixed yesterday after a retreat on Wall Street spurred by comments indicating the Federal Reserve intends to more aggressively tackle inflation.

Benchmarks rose in Paris and Frankfurt after declines in most Asian markets. United States (US) futures fell while oil prices were higher.

The Fed comments have added to investor unease over coronavirus outbreaks in China and persistent high inflation.

Minutes from the Fed’s meeting last month showed policymaker s agreed to begin cutting the Fed’s stockpile of Treasurys and mortgage-backed securities by about USD95 billion a month, starting in May. That’s more than some investors expected and nearly double the pace the last time the Fed shrank its balance sheet.

European shares wobbled after the open, with the CAC 40 in Paris up 0.2 per cent at 6,508.50 and Germany’s DAX edging 0.1 per cent lower to 14,141.12. The FTSE 100 in London shed 0.3 per cent to 7,554.73.

On Wall Street, the future for the S&P 500 was nearly unchanged. The future for the Dow Jones Industrial Average was 0.1 per cent lower.

The S&P 500 fell one per cent on Wednesday, while the Dow lost 0.4 per cent. The tech-heavy Nasdaq lost 2.2 per cent.

A woman walks past an electronic board showing the Hong Kong share index. PHOTO: AP

In Asian trading, Tokyo’s Nikkei 225 index lost 1.7 per cent to 26,888.57 while the Hang Seng in Hong Kong slipped 1.2 per cent to 21,808.98. The Shanghai composite index shed 1.4 per cent to 3,236.70. South Korea’s Kospi declined 1.4 per cent to 2,695.86 and Australia’s S&P/ASX 200 gave up 0.6 per cent to 7,442.80.

Chinese markets declined despite state media reports that Premier Li Keqiang, the country’s top economic official, promised support for the economy as it battles its worst coronavirus outbreaks so far.

Li told a meeting of the State Council, or Cabinet, that monetary policy would be used to “effectively support the real economy”, Xinhua reported.

The State Council agreed to postpone required payments of pension insurance premiums on a time-limited basis for industries facing “special difficulty”, and to channel unemployment insurance funds to help companies keep people on payrolls, it said.

While China is contending with slumping growth, the US central bank is moving to cool inflation by reversing low interest rates and the extraordinary support it began providing for the economy two years ago when the pandemic knocked the economy into a recession.

A faster reduction in the Fed’s balance sheet would help push up longer-term rates, but also raise borrowing costs for consumers and businesses.

At its meeting in March, the Fed raised its benchmark short-term rate by a quarter percentage point, the first increase in three years. The minutes showed many Fed officials wanted to hike rates by an even bigger margin last month, and they still saw “one or more” such supersized increases potentially coming at future meetings.

Higher rates tend to reduce the price-to-earnings ratio of stocks, a key valuation barometer.

Such a scenario can particularly hurt stocks that are seen as the priciest, which includes big technology companies.

Early yesterday, the yield on the 10-year US Treasury, which is used to set interest rates on mortgages and many other kinds of loans, was at 2.57 per cent. It is at the highest levels it’s been in three years.

Traders are now pricing in a nearly 77 per cent probability the Fed will raise its key overnight rate by half a percentage point at its next meeting in May.

That’s double the usual amount and something the Fed hasn’t done since 2000.