Morning Chronicle - Wall Street tumbles on Fed worries, pound slumps

The sell-off was New York's worst since 2020, and saw the Nasdaq -- dominated by tech firms that are particularly sensitive to higher rates -- lose five percent, while the Dow and S&P 500 fell more than three percent.

With US inflation at levels not seen since the 1980s, the Fed on Wednesday hiked the key lending rates by half a percentage point, but cheered markets, at least at first, by saying a three-quarter point increase was not in the cards.

That message was not as hawkish as feared, but the Fed still is engaged in "one of the most aggressive tightening cycles that we have seen in decades," said Angelo Kourkafas, investment strategist at Edward Jones.

"It didn't necessarily change the narrative that economic growth is slowing, while the Fed will tighten monetary policy" at a fast pace, he said.

In Britain, the pound suffered after the Bank of England released an updated forecast, predicting annual inflation would rise above 10 percent and the economy would contract later this year, while hiking its main rate by an as-expected quarter-point.

The pound plunged more than two percent due to "the changes in the economic forecasts, which pointed to a potential recession by year end, and the warnings that rates may not rise as high as markets had been expecting in the months ahead," said market analyst Michael Hewson at CMC Markets UK.

The BoE said UK output was expected to contract in the final quarter of the year when inflation is likely to enter double digits as household energy prices rise sharply, although the central bank does not forecast a full-blown recession for the moment.

"Uncertainty over inflation and growth puts rate setters in a tricky dilemma," City Index analyst Fawad Razaqzada said.

"The key risk facing the UK is not necessarily tighter policy, but uncertainty over monetary policy and, more to the point, stagflation," he added.

Central banks worldwide are raising interest rates to fight inflation that is sitting at the highest levels in decades as economies ease pandemic restrictions while dealing with the war in Ukraine, which increased already high energy costs.

News that Turkish inflation soared to 70 percent in April highlighted the battle policymakers face in controlling prices.

In European trading, London managed to hold onto a marginal gain but both Frankfurt and Paris fell.

- OPEC+ decision -

As expected, Saudi Arabia, Russia and other key oil producers in the OPEC+ group agreed to another marginal increase in output as they weighed tight supply concerns caused by the Ukraine war against the risk pandemic restrictions in China pose to demand.

That sent oil prices jumping by more than three percent to firmly above $110 per barrel, but they later gave up most of their gains.

Traders on Thursday also digested earnings updates from some of the world's biggest companies.

Shares in Airbus soared around six percent in Paris after the European aircraft maker said late Wednesday that its net profit more than tripled in the first quarter to 1.2 billion euros ($1.3 billion), despite the impact of sanctions against Russia.

The results confirm the company's recovery after the Covid-19 pandemic slammed the air travel industry in 2020.

- Key figures at around 2035 GMT -

New York - Dow: DOWN 3.1 percent at 32,997.97 (close)

New York - S&P 500: DOWN 3.6 percent at 4,146.87 (close)

New York - Nasdaq: DOWN 5.0 percent at 12,317.69 (close)

EURO STOXX 50: DOWN 0.8 percent at 3,696.63 (close)

London - FTSE 100: UP 0.1 percent at 7,503.27 (close)

Frankfurt - DAX: DOWN 0.5 percent at 13,902.52 (close)

Paris - CAC 40: DOWN 0.4 percent at 6,368.40 (close)

Hong Kong - Hang Seng Index: DOWN 0.4 percent at 20,793.40 (close)

Shanghai - Composite: UP 0.7 percent at 3,067.76 (close)

Tokyo - Nikkei 225: Closed for a holiday

Brent North Sea crude: UP 0.8 percent at $111.03 per barrel

West Texas Intermediate: UP 0.6 percent at $108.46 per barrel

Euro/dollar: DOWN at $1.0540 from $1.0625 on Wednesday

Pound/dollar: DOWN at $1.2353 from $1.2632

Euro/pound: UP at 85.29 pence from 84.06 pence

Dollar/yen: UP at 130.20 yen from 129.05 yen

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P.Wright--MC-UK