World stocks slip as Fed rate hike signal spooks investors

HONG KONG – World stock markets sank Thursday after the Fed surprised investors by signalling that an interest rate hike is in the cards if economic conditions keep improving.

KEEPING SCORE: European stocks dropped sharply in early trading, with Germany’s DAX shedding 1.6 per cent to 9,788.29 and France’s CAC 40 falling 0.9 per cent to 4,278.98. Britain’s FTSE 100 slid 1.5 per cent to 6,075.68. U.S. stocks were poised to open lower, with Dow futures shedding 0.4 per cent to 17,415.00 and broader S&P 500 futures down 0.3 per cent to 2,034.70.

FED IN FOCUS: According to minutes of the Fed’s latest meeting, U.S. central bankers feel it would be time to raise rates at the next Fed meeting on June 14-15 if hiring and economic growth continue to strengthen and inflation keeps rising. The comments took investors by surprise and raise the prospect that some of the loose monetary policy that has supported stock markets globally will be dialed back. Investors are hoping for more insight from Fed officials including Vice Chairman Stanley Fischer and William Dudley, president of the Fed’s New York regional bank, who are scheduled to give speeches later Thursday.

QUOTEWORTHY: “Markets have looked for government stimulus as a reason for investing rather than good company economics or fundamentals. Obviously therefore if there’s less chance of stimulus people are left wondering what to do,” said Andrew Sullivan, sales trader at Haitong Securities. “Yes, it will be a shock to people, and I’m sure there will be a knee-jerk reaction but the reality is we are nowhere near normal rates.”

ASIA’S DAY: The benchmark Nikkei 225 index in Tokyo ended flat at 16,646.66, while South Korea’s Kospi lost 0.5 per cent to 1,946.78. Hong Kong’s Hang Seng shed 0.7 per cent to 19,694.33, while the Shanghai Composite Index in mainland China was practically unchanged at 2,806.91. Australia’s S&P/ASX fell 0.6 per cent to 5,323.30. Benchmarks in Taiwan, New Zealand and Southeast Asia also lost ground.

ENERGY: Benchmark U.S. crude oil extended its losses, falling 89 cents, or 1.9 per cent, to $47.30 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 12 cents, or 0.2 per cent, to settle at $48.19 a barrel on Thursday. Brent crude, used to price international oils, dropped $1.11, or 2.3 per cent, to $47.82 a barrel in London.

CURRENCIES: The dollar slipped to 110.00 yen from 110.10 yen in late trading Thursday. The euro fell to $1.1219 from $1.1225.