European Markets Extend Weekly Losses On Rate-hike Jitters

Barry Adams
26 Aug, 2022
New York City

European markets traded sideways but accelerated the decline after the comments from Fed Chairman Powell.

In an eight minute short speech, Chairman Powell delivered a forceful reminder of the need to fight inflation now despite the pain it is likely to inflict on the economy. 

Chairman Powell forcefully reiterated the central bank's commitment in aggressively fighting the four-decade high inflation before it entrenched and spread to a wider economy. 

Powell delivered his comments at  the Jackson Hole Economic Symposium, a gathering of central bankers, and said that reducing inflation will take time and will soften the labor market.  

The comments were widely viewed and anticipated but the forceful reiteration only highlighted the long road ahead for the policy makers and the near-term pain for households and businesses. 

"While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. 

These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain," Powell added in his prepared remarks. 

Stock markets turned sharply lower after Powell's comments and bond yields jumped above 3%. 

Moreover, weakening in consumer confidence in the euro zone's largest economy also unnerved the market. 

Germany's forward looking consumer confidence index declined further in September to -36.5 from -30.9 in August, according to the survey released by the market research group Gfk on Friday. 

However, French consumer confidence improved unexpectedly in August after falling for seven months in a row, according to survey results released by the French statistical office Insee on Friday. 

The DAX index dropped 2.2% to 12,971.47, the CAC-40 index declined 1.7% to 6,274.26, and the FTSE 100 index fell 0.7% to 7,427.31. 

For the week, the indexes dropped between 1.3% and 3.0%. 

Market indexes in New York continued to slide in the afternoon and closed at the lows of the day. 

The S&P 500 index dropped 3.4% to 4,057.74 and the Nasdaq Composite index plunged 3.9% to 12,141.27. 

Anglo American gained 1.1% to 2,951.0 pence after Peru abandoned its plan to impose additional tax on the mining industry. 

Micro Focus International soared 93% to 519.0 pence in London trading after the Canada-based OpenText agreed to acquire the enterprise software maker for $6 billion including debt. 

Canada-based OpenText declined 12.7% to $32.73 in New York trading.  

Centrica Plc increased 0.6% to 81.90 pence after the U.K. energy regulator Ofgem lifted the cap on household energy, electricity and natural gas bill by 80% to 3,549 pounds a year from the current 1,971 pounds. 

The price cap for pre-payment meters was introduced in 2019 to protect customers from wild swings in energy prices but about 29 suppliers have gone under this year after the surge in energy prices. 

About 24 million households or 85% of the U.K. population are expected to be affected after the implementation of price revision from October 1. 

Carlsberg A.S. declined 0.3% to 965.80 Danish kroner after the Danish brewer said it halt or "significantly lower" beer production in Poland.