Stock markets retreat after central bank rate hikes

AFP | London

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European and US stock markets retreated while oil prices wobbled yesterday at the end of a week dominated by central bank moves to tame inflation driven by the Middle East war.

After opening mixed, Wall Street's main indices were modestly lower in late morning trading.

Losses were sharper in Europe, where Frankfurt, London and Paris all lost around 1.5%.

Earlier, Asian markets had been lifted by renewed AI optimism.

"There isn't much conviction in key corners of the capital markets," said Patrick O'Hare at Briefing.com.

The Bank of Japan raised interest rates to a three-decade high on Friday, but the yen sank against the dollar on fears the pace of hikes might be slower than expected.

That came after the US Federal Reserve lifted borrowing costs, providing relief to traders concerned that policymakers were not moving quickly enough to address a spike in inflation that could deal a blow to the world's biggest economy.

The European Central Bank has also recently tightened monetary policy, while the Bank of England this week held its benchmark interest rate while signalling possible hikes ahead.

Oil prices fell around 2% on hopes that Saudi Arabia was moving to restore about half of crude shipments within days after they were disrupted by pipeline to the Red Sea, before paring losses.

The conduit, even more important since the effective closure of the Strait of Hormuz by Iran, was shut last week after being targeted by Yemen's Iran-backed Houthis.

But oil prices rebounded following a Bloomberg report that Saudi Arabia's national oil company Aramco oil company had informed at least two European refineries that they had not been allocated crude oil shipments next month.

The financial news agency's sources said Aramco's decision applied to all European customers. Crude prices, which soared around a fifth in September, have fallen over the past three days, but international benchmark Brent remains over $100 a barrel.

The surge in oil has been among the main catalysts for rising inflation since the United States and Israel began their war against Iran at the end of February. The latest moves in oil and the Fed's action kept the 10-year US Treasury bond yield, a key indicator of borrowing costs throughout the world's biggest economy, around 5%.