Wall Street stocks sold off sharply on Thursday as Switzerland and the UK joined a global rush to raise interest rates, following a sharp hike in borrowing costs by the Federal Reserve US as central banks tried to rein in high inflation.
The S&P 500 slid 3.3%, in a move that put the broad gauge on track for a weekly decline of more than 6% – its biggest drop since March 2020. The declines have accelerated in recent days due to pessimism about the global economic outlook. spread, with many investors warning that central bank action could choke off the recovery.
In a sign of the darkening outlook, almost all stocks in the S&P 500 index fell on Thursday, with losses sending stock prices of hundreds of companies in the United States plummeting to new 52-week lows. The tech-heavy Nasdaq Composite fell 4.1%.
The S&P had closed the previous session up 1.5% after the Fed raised its main interest rate by 0.75 percentage points, with Chairman Jay Powell saying he expected hikes of this magnitude are relatively rare.
However, in the latest sign of how central banks are stepping up their efforts to tackle searing inflation, the Fed’s decision was followed on Thursday by the Swiss National Bank raising its benchmark rate for the first time in 15 years – exceeding forecasts with a percentage of 0.5. point increase.
“The SNB has been in the ultra-dovish camp for so long,” said Francesco Pesole, currency strategist at ING. “If even they go up, it sends a message to markets that central banks see this summer as their last chance to do something about inflation before we hit a global slowdown.”
The Swiss franc rose 2% against the euro on Thursday to €0.98.
Europe’s regional Stoxx 600 stock index, which rallied on Wednesday after the European Central Bank promised a new mechanism to support weaker eurozone countries amid rising interest rates in the bloc, fell 2.7%.
The pound gained 0.8% against the dollar, rebounding from previous declines. The Bank of England on Thursday raised its benchmark interest rate by 0.25 percentage point to 1.25%.
Prior to the announcement, investors were split on whether they expected a quarter-point or half-point hike.
UK government debt prices fell after the decision, with the 10-year gilt yield rising 0.05 percentage points on the day to 2.52% as the BoE warned that UK inflation could rise above 11 % before the end of the year. Bond yields rise when prices fall.
The 10-year German Bund yield rose 0.06 percentage points to 1.69%, paring a larger 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 most indebted countries in the euro zone.
“They have a plan to develop a plan, but the market wants more details,” said Willem Sels, global chief investment officer at HSBC Private Banking.
“It’s good news that the ECB has 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%.