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US stocks and Treasury yields rose on Thursday, as the Federal Reserve chair warned interest rates will need to increase further for inflation to slow to its 2 per cent target.
Wall Street’s tech-heavy Nasdaq Composite added 0.5 per cent, recovering after three successive down days. The benchmark S&P 500 was flat.
The yield on the two-year Treasury added 0.07 percentage points to 4.78 per cent. The yield on the benchmark 10-year note gained 0.07 percentage points to 3.8 per cent. Bond yields rise as prices fall.
The moves came as Fed chair Jay Powell testified before the Senate banking committee, reiterating that the central bank is likely to opt for two more quarter-point rate increases by the end of the year.
US Department of Labor data on Thursday showed that the number of new applications for unemployment aid last week remained unchanged from the previous seven days, offering the Fed more leeway to increase rates.
Meanwhile, European equities traded lower after several central banks increased interest rates more than investors had expected, in a sign that stubborn inflation will keep policymakers hawkish for longer.
Europe’s region-wide Stoxx 600 ended the day 0.5 per cent lower, while France’s CAC 40 and London’s FTSE 100 both dipped 0.8 per cent.
The moves came after the Bank of England lifted its rate by a more than expected 0.5 percentage points to 5 per cent, a day after official data pointed to UK inflation remaining higher than forecast.
The Swiss National Bank raised its main policy rate 0.25 percentage points to 1.75 per cent, and did not rule out additional increases to stabilise prices over the medium term. Norway’s central bank increased its key rate from 3.25 per cent to 3.75 per cent and said it could raise it again in August.
“We are seeing a slew of central bank decisions today that send the message that inflation continues to be a threat, and [they] are continuing to take that very seriously,” said Joel Kruger, market strategist at LMAX Group.
“The implication is that inflation needs to be dealt with even at the expense of growth, potentially, so we are seeing less investor-friendly reactions from central banks globally,” he added.
Elsewhere, Turkey’s central bank lifted its benchmark one-week repo rate to 15 per cent from 8.5 per cent, in a sharp turnround from the low-rate policies pursued by President Recep Tayyip Erdoğan. The increase was less than the market had expected and the lira hit another record low against the dollar, down 4.72 per cent at 24.75.
Trading was muted in Asia as stock exchanges in China and Hong Kong are closed on Thursday and Friday for the Dragon Boat Festival.
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