Global stock and bond markets experienced a downturn on Wednesday following European Central Bank President Christine Lagarde’s indications that interest rate cuts in the eurozone might be delayed until summer.
The shift, coupled with the UK’s first inflation rise in 10 months, led to a reassessment of rate cut expectations in the UK and the US.
The Stoxx Europe 600 index closed down 1.2%, and London’s FTSE 100 dropped by 1.5%, marking significant declines in European markets. In the US, the S&P 500 and Nasdaq Composite both fell 0.6% amid strong retail sales data, which dampened prospects of early rate cuts by the Federal Reserve.
Bond markets also saw a sell-off, with UK two-year bond yields climbing to 4.35% and US two-year yields matching this rise. These market reactions followed comments from Fed board member Christopher Waller, who advised against hasty rate cuts.
Lagarde’s remarks, made just before the ECB’s quiet period before its January 25 meeting, highlighted ongoing high inflation in the eurozone’s labour-intensive sectors and the risk of wage-driven price pressures despite a general slowdown in annual price growth.
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