European stock markets tumbled into the red on Thursday as traders look ahead to the Bank of England decision on UK interest rates.
In London, the FTSE 100 (^FTSE) fell 1% after opening, with almost every share on the blue-chip index lower. Investment companies, property firms and hotel groups were among the fallers.
On the bloc, the CAC (^FCHI) tumbled 1.6% in Paris, and the Frankfurt DAX (^GDAXI) was 1.8% lower.
Money markets believe there is now around a 90% chance that Threadneedle Street will raise the Bank Rate by 75 basis points to 2.5%, as it aims to rein in runaway inflation.
This would be its biggest hike since 1989, and take borrowing costs to their highest levels since late 2008.
However, some economists think the Bank might only raise rates by another half a percent, with an expected vote split from the monetary policy committee (MPC).
“While 75bp is far from inconceivable, 50bp remains more likely, in our view,” Kallum Pickering, senior economist at Berenberg, said.
“Remember, in addition to raising rates, the BoE looks set to announce the start of active selling of gilts as part of its quantitative tightening policy.
“As financial conditions are already tightening as benchmark rates edge ever higher, we believe the BoE will wait to see the impact of active QT before deciding on whether to steepen the trajectory of rate hikes.”
Read more: Interest rates: UK braces for possible biggest hike in 33 years
Across the pond, S&P 500 futures (ES=F) were down 0.6%, Dow futures (YM=F) shed 0.4%, and Nasdaq futures (NQ=F) were 0.8% lower as trade began in Europe.
Last night, the US Federal Reserve delivered its third consecutive interest rate rise, lifting rates by another 75 basis points.
Chair Jerome Powell said the central bank would keep tightening rates to push down inflation, and that he would not rule out a recession.
The dollar surged to a fresh two-decade high on the back of the move. The pound (GBPUSD=X) is now down against the US greenback by almost 17% so far this year.
Watch: How does inflation affect interest rates?
Michael Hewson of CMC Markets said: “Not surprisingly US equity markets did not like the hawkish tone, as well as the prospect of lower growth and higher inflation, with the Fed altering its guidance on both.
“US GDP is expected to slow to 0.2% in 2022, with Powell admitting that a recession might be possible. Core inflation is forecast to decline to 4.5% this year, before falling to 2.1% by 2025.”
Investors will also have their eyes on US weekly job claims later in the day.
Read more: Interest rates: How BoE’s rate hike will impact mortgages and house prices
Asian stocks hit a two-year low on Thursday as the prospect of US interest rates rising further and faster than expected spooked investors.
In Japan, the Nikkei (^N225) lost 0.6% while the Hang Seng (^HSI) slumped 2% on the day in Hong Kong, and the Shanghai Composite (000001.SS) dipped 0.3%.
It came as the Australian, New Zealand, Canadian and Singapore dollars hit two-year lows while China’s yuan likewise reached its lowest in 24 months.
Meanwhile, the yen hovered near a 24-year low as investors digested news from the Bank of Japan, which left rates and monetary policy unchanged.
Watch: Federal Reserve raises interest rates for the fifth time this year
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