Global markets seek direction as central banks take different routes

ISTANBUL

Amid growing inflationary pressures and concerns over the coronavirus omicron variant, international markets seem to be on a mixed course, particularly after the divergence of various central banks on monetary policies.

Inflation data from the European Union will be in focus on Friday.

The Bank of England (BoE) hiked interest rates on Thursday after the US Fed accelerated its reduction in asset purchases and signaled at least three rate hikes for next year.

The BoE increased the policy rate from 0.1% to 0.25% for the first time since August 2018.

Citing concerns over the rapidly spreading omicron strain, the bank said “additional measures will push down on GDP in December and in 2022 Q1.”

It added that upward pressure on inflation is expected to dissipate over time, as supply disruption eases, global demand rebalances from goods to services, and energy prices stop rising.

While keeping interest rates unchanged, the European Central Bank (ECB) announced it plans to end a pandemic emergency purchase program by the end of March.

The ECB has had a more dovish stance so far compared to other major central banks, including the BoE and the US Federal Reserve, relying on an unprecedented expansionary monetary policy to support the eurozone economy during the pandemic.

In a Friday announcement, the Bank of Japan (BoJ) did not change its interest rates and signaled a continuation of its loose monetary policies.

The BoJ extended its pandemic-relief loan scheme for small and medium-sized companies by six months until September 2022.

However, it decided that a funding program for corporate bonds and commercial securities, mainly issued by large companies, will not go beyond March.

Over in the US, the number of people filing first-time unemployment claims increased by 18,000 to reach 206,000.

The country’s manufacturing Purchasing Managers’ Index (PMI) fell to 57.8 in December, the lowest level in the past 12 months.

The service sector PMI was at a three-month low of 57.5, while industrial production remained below expectations with a monthly increase of 0.5% in November.

US President Joe Biden signed a bill on Thursday to raise the US debt limit, avoiding the first American government default in history.

The debt limit was raised by $2.5 trillion to around $31.4 trillion, and it will finance the government’s debt obligations through 2023, including the 2022 midterm elections.

The developments led to major US stock indexes closing lower on Thursday, despite a strong opening.

The Dow Jones Industrial Average dropped by 29 points, or 0.08%, to 35,897, while the S&P 500 slipped by 41 points, or 0.87%, to 4,668.

The Nasdaq plummeted by 385 points, or 2.47%, to 15,180, with a sell-off in stocks of tech companies.