Stocks dip after Fed bounce, BoE adds a twist

Wall Street was set to trim some of the strong gains made in Asia on Thursday, after China had signalled more support for its spluttering economy and both the Fed and Bank of England pressed on with interest rate hike plans.

Traders remained gripped by the war in Ukraine but, but with hopes of possible a peace deal faint but alive, the focus was back on big macro questions such as surging inflation rates, COVID and growth.

Wall Street futures were fractionally lower after a more than 2 per cent jump the previous day when the Federal Reserve had raised US interest rates - one of the key drivers of global borrowing costs - for the first time in more than three years.

Europe's main bourses also dipped after an initial rise (.STOXX) although the overnight 3.5 per cent leaps from the Nikkei in Tokyo (.N225) and emerging market stocks (.MSCIEF) following China's signals took MSCI world's (.MIWD00000PUS) three-day bounce over 6 per cent

Sanctions-ravaged Russia still had not managed to get a crucial payment to its bond holders, meaning a historic default may be looming, and its ongoing shelling of Ukraine kept commodity markets gyrating wildly.

Oil prices sprang back over the symbolic $100 level again. The Kremlin had lashed out after US President Joe Biden had labelled Russian President Vladimir Putin a war criminal on Wednesday, but Moscow also said it was putting "colossal energy" into Ukraine peace talks.

"The reaction both this morning and overnight validates that the markets think the Fed is in line, or ahead of the curve, and doing the right thing," by hiking interest rates, Robert Alster, Chief Investment Officer of Close Brothers Asset Management, said.

He added it was also the "right thing" for the Bank of England to raise its rates for a third meeting running, back to its pre-pandemic level of 0.75 per cent.

The move came alongside a revised prediction that UK inflation will peak at around 8 per cent - almost four times its 2 per cent target - after previous forecasts were overtaken by seismic shifts in energy markets following Russia's invasion of Ukraine.

"The crunch point is that we are all expecting inflation to start coming down after Easter," Alster added. "But if that doesn't happen then we all probably need to have a reset."

Metals markets faced more drama too as the benchmark nickel price on the London Metal Exchange's (LME) slumped by its daily-allowed limit for the second day in a row. Traders warned that the drop was unlikely to stop until prices reached parity with those for the metal in China.