Friday, 28 January 2022

Markets mixed, tightening cycle “poses clear risks”

Markets were mixed on Thursday.

The S&P 500 fell 0.5 percent, its second consecutive decline. It had traded in positive territory earlier in the session.

Elsewhere on Thursday, the Nikkei 225 plunged 3.1 percent but the STOXX Europe 600 rose 0.7 percent.

Markets remained volatile after the Federal Reserve indicated on Wednesday that the first interest rate hike since late 2018 could come as soon as March.

Some analysts expect rapid tightening from the Fed.

“This tightening cycle will be different,” said Dario Perkins, an economist at TS Lombard in London. “The authorities may want to hike interest rates much quicker this time around.”

BNP Paribas global chief economist Luigi Speranza also expects that “this time is different” and predicts six Fed hikes this year.

And the tightening trend is global, with South Africa, Hungary, Singapore and Chile having already started and the Bank of Canada signalling a rate increase in March.

Perkins said that “the authorities might need to tighten policy more forcefully than investors realize. This poses clear risks to the financial sector.”

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