U.S. yields rise, Asian shares and European futures tumble as Powell warns on inflation

U.S. yields rise, Asian shares and European futures tumble as Powell warns on inflation

Euro Stoxx 50 futures

Asian shares plunged to their lowest in nearly 15 months, short-term U.S. yields hit 23-month highs and the dollar strengthened on Thursday after the Federal Reserve’s chairman signaled plans to steadily tighten policy.

The share route looked set to continue into European and U.S. trading. Pan-region Euro Stoxx 50 futures tumbled 2.88%, FTSE futures lost 1.98%, Nasdaq futures dropped 1.73% and S&P 500 e-minis shed 1.56%.

At the same time, rising investor concerns over political tensions between Russia and Ukraine exacerbated worries over tight energy market supply, keeping oil prices elevated at multi-year highs despite some profit-taking.

In its latest policy update on Wednesday, the Fed indicated it is likely to raise U.S. interest rates in March, as has been widely expected, and reaffirmed plans to end its bond purchases that month before launching a significant reduction in its asset holdings.

But in the follow-up press conference, Powell warned that inflation remains above the Fed’s long-run goal and supply chain issues may be more persistent than previously thought.

“There was a marked shift in terms of a relatively dovish statement and then a relatively hawkish press conference,” said David Chao, global market strategist, Asia Pacific (ex-Japan) at Invesco.

“Powell (is) not committing to the size or the frequency of rate hikes and also the timing of the balance sheet reduction. I think that buys him a bit of wiggle room as to how quickly and with what velocity he wants to normalize monetary policy in the U.S.” said Chao, adding that moves would depend on upcoming economic data.

The FTSE MIB climbed up by 2.27% to 26,619.20. In the cash markets, the DAX  Germany was trading up by 2.22%  to 15,459.65. CAC 40  in France rose by 2.11% to 6,981.37 while the FTSE 100  in the U.K. was up by 1.33% to 7,469.35, at the time of writing.

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