European stocks opened notably weaker Thursday, while U.S. equity futures extended overnight declines as investors react to hawkish minutes from the Federal Reserve that appear to cement the case for as many as four interest rate hikes this year as the economy continues to improve and inflation slowly accelerates.
The Stoxx Europe 600 index, the region's broadest measure of share prices, fell 0.92% in the opening hour of trading to 377.59 points, even as the euro slipped below 1.23 against the resurgent U.S. dollar as investors rushed to re-price stocks in the wake of rising government bond yields. Britain's FTSE 100 slumped more than 1.1% at the opening bell as the pound held onto gains against the dollar ahead of an early reading of Q4 GDP later in the session amid improving expectations for the U.K. economy and more rate hike suggestions from the Bank of England.
Early indications from U.S. futures suggest another day in the red for Wall Street, with contracts tied to the Dow Jones Industrial Average falling 67 points from their Wednesday close and those tied to the broader S&P 500 sliding 2.5 points, or 0.1%, into the red.
The stock market reactions reflect a global re-pricing of risk in the face of persistent rate hike signals from central banks in Britain, Europe, Japan and the United States, all of which are contributing to the upward moves in government bond yields, and U.S. Treasury notes in particular. Benchmark U.S. 10-year paper touched a fresh four-year high of 2.957% yesterday before easing back to 2.92% in overnight Asia trade, but with more auctions on the slate for today, 10-year notes could test the 3% level that many analysts suggest could trigger major portfolio allocation changes as early as this week.
"Members agreed that the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate," the Fed said in the first release of minutes under the tenure of new chairman Jerome Powell. The language helped lift the market's assumption of a March rate hike to 84.5%, according to the CME Group's FedWatch tool, compared to 71.8% only a month ago.
Rising bond yields have also continued to lift the U.S. dollar from its recent three-year lows against a basket of its global peers, with the dollar index rising a two-week high of 90.23 during Asia trading hours, a move which helped keep regional stocks -- especially in markets that are heavily-reliant on dollar-priced commodities -- in the red.
The region-wide MSCI Asia ex-Japan index was marked 0.89% lower heading towards the close of the Thursday session, although markets in China gained around 2% on the first day of trading after the country's week-long lunar New Year celebrations. Japan's Nikkei 225 benchmark, however, fell 1.1% to end the trading day at 21,736.44 points.