By Andre Janse van Vuuren and Divya Patil

(Bloomberg) -- European stocks mirrored losses in Asia and the US session after a hawkish pivot by the Federal Reserve jolted markets. The yen slid as the Bank of Japan left borrowing costs unchanged.

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The Stoxx 600 dropped 1.2% and a gauge of Asian equities fell by a similar margin. US stock futures rose following the S&P 500’s biggest lost since 2001 for a Fed decision day.

The yen weakened past yet another milestone after comments by BOJ Governor Kazuo Ueda cast doubt on whether the bank could hike interest rates in January. The currency depreciated as much as 1.2%, breaching 156 versus the dollar.

The turbulence followed after the Fed scaled back the number of cuts it sees in 2025 to two and Chair Jerome Powell said future easing would require fresh progress on inflation, prompting sharp rises in the dollar and Treasury yields. The greenback and Treasuries steadied on Thursday.

“The Fed may have spoiled this year’s Santa rally,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Its hawkish shift could trigger a deeper correction across US equity markets, which have enjoyed two stellar years.”

Money markets are pricing in fewer than two quarter-point reductions for the entirety of 2025, even less than what was implied in the Fed’s so-called dot plot on Wednesday. In the options market linked to the Secured Overnight Financing Rate, one large block trade placed Wednesday afternoon even stands to benefit from the start of another hiking cycle next year.

In China, authorities ramped up support for the currency via its daily reference rate after the Fed’s caution over future rate cuts sent the offshore yuan to a fresh one-year low.

In commodities, oil fell as expectations for fewer Fed rate cuts boosted the dollar. Gold staged a partial recovery in Asian trading after tumbling more than 2% in the previous session.

Key events this week:

• UK BOE rate decision

• US revised GDP, Thursday

• Japan CPI, Friday

• China loan prime rates, Friday

• Eurozone consumer confidence, Friday

• US personal income, spending & PCE inflation, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 1.2% as of 8:20 a.m. London time

• S&P 500 futures rose 0.3%

• Nasdaq 100 futures rose 0.2%

• Futures on the Dow Jones Industrial Average rose 0.3%

• The MSCI Asia Pacific Index fell 1.6%

• The MSCI Emerging Markets Index fell 1.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.4% to $1.0395

• The Japanese yen fell 1.2% to 156.60 per dollar

• The offshore yuan rose 0.2% to 7.3134 per dollar

• The British pound rose 0.3% to $1.2614

Cryptocurrencies

• Bitcoin rose 0.5% to $101,427.82

• Ether fell 0.3% to $3,680.61

Bonds

• The yield on 10-year Treasuries was little changed at 4.52%

• Germany’s 10-year yield advanced four basis points to 2.29%

• Britain’s 10-year yield advanced seven basis points to 4.63%

Commodities

• Brent crude fell 0.8% to $72.82 a barrel

• Spot gold rose 1.2% to $2,617.37 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Cecile Gutscher.

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