- Fed surprises with aggressive hike projections
- Japan intervenes in FX as dollar/yen breaks 145
- Central bank bonanza as UK, Switzerland and Norway hike
World stocks were close to a two-year low and Japan was forced to intervene to prop up the yen for the first time since 1998 on Thursday after the Federal Reserve's aggressive US rate hike signals had markets on the run.
In Europe, where on top of economic pain and volatility fears rose after a Russian threat to use nuclear weapons to defend itself, major stocks markets tumbled by more than 1% before they found support.
Tokyo swooped to support the yen not long after European markets opened. While the move seemed to have been coming for weeks, the yen has fallen 20% this year almost half of which came in the last six weeks, it still packed a punch.
The yen surged to 142.39 from 145.81 to the dollar in the space of a few minutes and got to 140 before stopping. /FRX
It helped the euro lift off a 20-year low too and hoisted sterling , which is not far behind the yen having lost over 8% since August, from a 1985 low as the Bank of England raised its rates by another 50 basis points.
"We have taken decisive action (in the exchange market)," Japan's vice finance minister for international affairs Masato Kanda told reporters.
The move had came just hours after the BOJ had maintained super-low interest rates, fighting the global tide of monetary tightening by the Fed and others trying to rein in inflation.
Asian stocks had swooned to a two-year low overnight after the Fed's rate hike and GDP forecast cuts had triggered a brutal finish on Wall Street, although S&P futures pointed to a modest rebound later.
"Fed is delivering exactly what it said it would (with rate hikes) but the markets have pushed out the path of interest rates quite a lot," Close Brothers Asset Management Chief Investment Officer Robert Alster said.
"All of a sudden we are entering a scenario where everything gets a lot more drawn out... It is a bit disconcerting in some respects but at least they have laid out the road map and the economy is second to monetary policy.
In the rates market, short-term yields remain on the rise and the peak for the benchmark Fed funds rate a moving target.
The median of Fed officials' own outlook has US rates at 4.4% by year's end -- 100 bps higher than their June projection -- and even higher, at 4.6%, by the end of 2023.
Futures have scrambled to catch up. The yield on two-year Treasuries hit a 15-year high of 4.13% in Asia before dipping back to 4.10% in Europe.
Ten-year yields are below that, at 3.54% as traders price in the hikes' damage to longer-run growth. In Europe, Germany's rate sensitive 2-year bond yield rose as far as to 1.897% - its highest since May 2011.
"No one knows whether this process will lead to a recession or if so how significant that recession would be," Fed Chair Jerome Powell told reporters after the rate hike announcement.
"The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive, or restrictive for longer."
FOLLOW THE FED
The Swiss National Bank also pulled up its rates by a chunky 0.75 percentage point - only the second increase in 15 years which also ended its spell in negative interest rates.
Previously Swiss rates had been frozen at minus 0.75% for years as the SNB tried to tame the appreciation of the Swiss franc but Thursday's message was that more might needed in the current inflationary environment.
"To provide appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary," it added, sending the franc up over 1%.
The global outlook is helping drive the dollar higher as US yields look attractive and investors think other economies look too fragile to sustain rates as high as those contemplated in the US.
Japan and China are the outliers and their currencies are sliding particularly hard -- the yen had fallen to the weaker side of 145 per dollar on Thursday before Tokyo's intervention after the Bank of Japan had stuck with its ultra-easy monetary policy.
Yields in Japan's government bond market also retreated as speculators closed some bets on imminent policy changes.
Back in Europe, Norway and Britain raised their rates by 50 bps with traders seeing plenty more coming too.
Not that that is much salve for the region's currencies.
The pound had hit a 37-year low of $1.1213 overnight on growing worries about Britain's finances and Sweden's crown had hit a record low despite the country's steepest rate hike in a generation earlier this week.
The dollar's rise has also sent emerging market currencies tumbling and punished cryptocurrencies and commodities.
Lira traders winced as Turkey, where inflation is now running at around 85%, defied economic orthodoxy and slashed another 100 basis points off its interest rates.
Spot gold was down 0.3% near a two-year low at $1,668 an ounce. Bitcoin was just above $19,000 and Brent crude steadied at $90.33 a barrel after sliding on demand worries.
"The more hawkish the Fed gets, the more market volatility is likely to be elevated, and the risk of a recession ticks higher," said Gautam Khanna, Head of US Multi Sector Fixed Income at Insight Investment.