Stocks mostly drop as traders mull central bank moves

NEW YORK — World stock markets mostly fell on Friday, giving up gains made after major central banks took action to combat "soaring" inflation as the fragile economic recovery appears threatened again by spiking COVID-19 cases.

In Europe, London equities bucked the trend by managing a small gain, one day after the Bank of England (BoE) delivered a "shock" interest rate hike to counter decade-high UK inflation.

All major Wall Street indices fell, with the Dow and S&P 500 seeing the biggest losses.

Oil prices dropped on renewed demand fears linked to the Omicron COVID variant.

"It's been a volatile week, not only in term of price actions but the news that have been coming out," said Tom Cahill of Ventura Wealth Management, adding that "the markets are still trying to work through the scenario".

European indices rallied on Thursday after the US Federal Reserve (Fed) and European Central Bank laid out inflation-fighting plans and the BoE hiked interest rates to 0.25 per cent.

Asian indices had also jumped after the Fed announced a more hawkish path, speeding up the rollback of its pandemic stimulus, and signaling policymakers expect a number of interest rate hikes in 2022 and beyond as the economy rebounds.

Ending uncertainty 

Investors welcomed an end to some of the uncertainty that had long plagued markets, but Wall Street retreated on Thursday as investors took stock of the new policy, and continued to slide in the final session of the week.

"European markets are [mostly] following their US and Asian counterparts lower today, with the initial positive reaction in the face of Fed and BoE monetary tightening faltering as we head into the weekend," said IG analyst Joshua Mahony.

OANDA analyst Craig Erlam said, "It's not the possibility of inflation, rather the prospect of it rising out of control that's prompting the move and clearly, investors fear inflation far more than modest tightening. As they should."

Tech firms — which are more susceptible to higher borrowing costs — took the brunt of the selling, sending the Nasdaq diving on Thursday, though it lost only 0.1 per cent on Friday.

Tokyo stocks closed lower on Friday on profit-taking.

Concluding a two-day meeting, the Bank of Japan decided to partially extend its special loan programme to support companies hit by the pandemic but scale back other measures, while keeping its key monetary policy unchanged.