Global stocks rebound despite Fed's hint that it will raise rates to tamp down inflation

Fed chairman Jerome Powell says: 'If we have to raise interest rates more over time, we will'

Tue, 11 Jan, 2022 - 19:52

US stocks rebounded from a five-day slide after Jerome Powell reassured investors the Federal Reserve will tamp down inflation as the American economy continues to recover.

The S&P-500 pushed higher, while the Nasdaq-100 outperformed major benchmarks and bonds fluctuated.

The Fed chief told the US Senate banking committee that the central bank won’t hesitate to act if needed to contain price pressures and help ensure full employment.

“If we have to raise interest rates more over time, we will,” he noted.

Mr Powell also said that at some point this year, officials will allow the Fed’s $8.77 trillion balance sheet to run off.

The drumbeat for the Fed to implement four quarter-point hikes this year is growing, with some Fed officials calling for a raise as soon as March.

European market recovery driven by tech and optimism

Meanwhile, investors venturing back into technology shares — along with upbeat expectations for the fourth-quarter earnings season — led European stocks to recover, after fears of rising rates drove heavy losses in recent sessions.

The pan-European Stoxx-600 closed 0.8% higher, recovering from its worst day in nearly two months. Technology stocks were the best performers for the day, adding 1.9% after tumbling nearly 8% over the past seven sessions.

Rising bond yields across the world on expectations of US and European interest rate hikes this year had spurred large losses in tech as investors discounted future earnings from the sector.

"The market is grappling with a broad-based rotation and the potential for a hastened pace of rate hikes, which is leading to volatility," said Greg Marcus, managing director of UBS Private Wealth Management.

ECB doesn't see inflation going above 2%

European bourses have tumbled from record highs hit earlier this month as rising yields, inflationary pressures, and Covid cases pile pressure on equities.

However, the ECB does not see eurozone inflation above its 2% target in the medium term, chief economist Philip Lane said, even as inflation across the bloc rose to 5% in December.

The upcoming fourth-quarter earnings season is expected to strike a positive note for stock markets.

"Regardless of the volatility seen in markets so far this year, corporate fundamentals are strong and we are expecting double-digit earnings growth this year, which should bode well for stock prices in 2022," UBS' Marcus said.

Profit for companies listed on the Stoxx-600 is expected to jump 49.3% in the fourth quarter to €109.1bn from a year earlier.