Fears of an interest rate hike to ease inflationary pressure as the global economy rebounds on Covid-19 have plummeted stocks on both sides of the Atlantic.
Comments from US Treasury Secretary Janet Yellen that a slight increase in borrowing costs might be needed to contain demand was enough to send tremors to financial markets already shaken by computer chip shortages.
German manufacturers – such as Volkswagen and Siemens – and US tech stocks such as Microsoft, Amazon, Facebook Apple and Alphabet (the owner of Google) were among the biggest bearers, with investors looking for stocks considered less risky.
The high-tech Nasdaq index fell more than 2% at the start of trading in New York, while the German Dax index registered its biggest drop in 2021 so far – a drop of 384 points to 14,852 points, a decrease of 2.5%.
In London, the FTSE failed to hang on to its first gains once Yellen’s comments became known – dropping 130 points from its day’s high to close 46 points lower at 6923 points.
Stock prices have risen in recent weeks in hopes of a rebound in activity in developed countries where vaccination programs are most advanced.
Still, financial markets have started to see signs that damage to economies from a lockdown year could prevent supply from keeping up with demand, leading to higher inflation and the removal of stimulus by banks. power stations.
As a result, the optimistic mood has been soured by reports of supply bottlenecks and Yellen’s warning that the Federal Reserve may need to rethink its zero interest rate policy due to the additional demand injected into the US economy.
In an interview with Atlantic magazine, Yellen said the multibillion spending plans announced by President Joe Biden would be good for the economy, but central bank action may still be needed to prevent the bigger world economy to grow too quickly.
“Interest rates may need to increase somewhat to ensure our economy does not overheat, even though the additional spending is relatively small relative to the size of the economy,” she said. .
“It could mean very modest increases in interest rates to get that reallocation, but these are investments that our economy needs to be competitive and productive (and) I think our economy will grow faster because of them.
Danni Hewson, analyst at AJ Bell, said: “The London markets may have started the day with an injection of energy after the holidays, but by the afternoon the hangover did. installed. that absorbs alcohol, but the kind that pushes supply chains forward.
“Today’s warning came from German chipmaker Infineon, which is increasing supply, but estimates the current situation will result in 2.5 million fewer cars being produced in the first half of 2021 than expected.”