(Bloomberg) — U.S. and European equity futures slid with Asian stocks Thursday after Federal Reserve Chair Jerome Powell signaled a March interest-rate liftoff and stoked speculation about the possibility of unexpectedly aggressive policy tightening.
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Euro Stoxx 50 futures tumbled as much as 3.1% before paring some losses, while contracts on the S&P 500 and Nasdaq 100 also slid. An Asia-Pacific share gauge sank to the lowest in 14 months, with South Korea entering a bear market, China getting closer to one and Australia off 10% from an August peak. The Fed fallout erased a Wall Street rally Wednesday.
Powell reinforced the Fed’s determination to quell the highest inflation in a generation amid a robust recovery from the pandemic. The central bank also said it expects to begin balance-sheet reduction after starting rate hikes.
Two-year Treasury yields — acutely attuned to Fed policy — jumped in the U.S. session and were at the highest levels since the pandemic’s emergence. Those on 10-year Treasuries fell. A key part of the yield curve was around the flattest since early 2019, hinting at concerns for growth as the Fed dials back economic support.
The dollar was at a one-month high, while commodity-linked currencies weakened. Oil dipped, gold extended a decline and Bitcoin — whose fortunes have been tightly correlated with stocks of late — wavered around the $36,000 level.
Bonds in Asia succumbed to losses, including in New Zealand and Australia.
The Fed’s flip to a hawkish stance has roiled stocks and bonds this month. Investors fear that price pressures and receding stimulus will squeeze economic growth and company profits. Markets ramped up pricing of Fed hikes, pointing to a 94% probability of five quarter percentage-point moves in 2022.
The FOMC meeting “played out more hawkishly than we expected,” Steven Englander, global head of G-10 FX research at Standard Chartered Bank, wrote in a note. “The FOMC statement was largely as anticipated, but Fed Chair Powell emphasized upside risks to inflation, pointing to a…