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European Markets to Retreat as Central Banks Signal Higher Interest Rates

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European Markets Prepare for Retreat as Central Banks Signal Higher Interest Rates

European markets are expected to decline on Friday following a series of central bank decisions this week that have raised the prospect of higher interest rates in the long term. The pan-European Stoxx 600 already dropped 1.3% on Thursday, marking a volatile week for stock markets.

The US Federal Reserve, while keeping interest rates unchanged on Wednesday, adopted a hawkish tone, indicating the likelihood of a rate hike later this year. The central bank also suggested that rates would remain elevated for an extended period as it seeks to exert sustained downward pressure on inflation. Fed Chairman Jerome Powell reiterated that the top priority is restoring price stability and preventing a resurgence of inflation.

On Thursday, both the Bank of England and the Swiss National Bank decided to end their recent cycles of interest rate hikes. However, both banks emphasized that further rate increases and sustained higher rates are still on the table. In contrast, both the Swedish and Norwegian central banks raised interest rates.

Meanwhile, the Bank of Japan kept interest rates unchanged at -0.1% on Friday and maintained its outlook and yield curve control policy. This indicates that the bank has no immediate plans to end its economic stimulus measures.

Shares in the Asia-Pacific region were mixed on Friday, rebounding slightly from earlier losses. U.S. stock futures also pointed to a slightly higher open later in the day, providing some relief after a challenging week for major Wall Street indexes.

In Europe, important data releases on Friday include August retail sales and September purchasing managers’ index readings from the United Kingdom.

These central bank decisions and the ensuing market volatility highlight the delicate balance that policymakers must strike between supporting economic growth and managing inflation. The actions of central banks around the world have a significant impact on financial markets and can influence investment decisions by businesses and individuals.

Investors will be closely monitoring future central bank actions and statements for any indication of changes in monetary policy. The prospect of higher interest rates can impact various sectors of the economy, including housing markets, consumer spending, and borrowing costs for businesses.

While the immediate reaction in the markets might be negative, it is important to remember that central banks are taking these steps to maintain stability and guard against the risks associated with inflation. However, the potential for further market volatility remains as investors assess the evolving economic landscape and adjust their strategies accordingly.

More detail via CNBC here… ( Image via CNBC )

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