Markets rattled amid fears over delayed rate cuts

Shares slump as solid US data fuels doubts over extent of Fed rate cuts.

Markets rattled amid fears over delayed rate cuts
Stocks Under Pressure

Global stock markets continued lower on Wednesday as stubbornly high inflation stoked worries that the Federal Reserve may not deliver the level of interest rate cuts investors had been anticipating.

In Asia, MSCI's broad index of shares outside Japan slid 0.7%, while the Nikkei 225 in Tokyo fell 0.8% after surging 20% in the first quarter. The losses tracked a sharp selloff on Wall Street overnight.

A powerful 7.2-magnitude earthquake that struck Taiwan, raising concerns about potential disruptions to chipmaker TSMC's production, added to the market volatility. TSMC's shares dipped 0.9% initially as some facilities were evacuated before workers returned.

However, the main driver was growing doubts over the Fed's rate path after a recent string of solid U.S. economic data, including an unexpected expansion in manufacturing activity last month. This has markets questioning whether policymakers will cut rates as aggressively as previously projected.

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European markets braced for a subdued start, with EuroStoxx 50 futures flat and FTSE futures down 0.3%. U.S. stock futures signalled further declines of around 0.2% ahead of comments from Fed Chair Jerome Powell and key services and jobs figures later in the session.

The 10-year Treasury yield surged to a four-month peak of 4.405% overnight before easing back to 4.3572% as traders pared bets on the extent of forthcoming Fed rate cuts.

"At this meeting, the Fed is still indicating three rate cuts this year, but markets are increasingly pricing in the risk of fewer cuts than that - with around a one-in-three chance now that they don't ease policy at all in 2024," said Andrew Lilley, chief rates strategist at Barrenjoey.

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