Saikat Chatterjee gives a glimpse at what lies ahead.

To change global market moods, all it required was the minutes from a U.S. Federal Reserve policy conference that had been three weeks old. The Fed’s December meeting minutes showed officials had discussed shrinking the U.S. central bank’s overall asset holdings as well as raising interest rates sooner than expected to fight inflation. Investors fled, sending global markets into turmoil.

Dow Jones, after hitting an all-time high earlier in day, reversed its course and fell over 1%. This selloff was widespread as the markets went through one of their most turbulent rotation trades. Investors dumping tech stocks in favour of industrials and consumer staples. On Wednesday, the Nasdaq fell more than 3 percent in the largest one-day percentage decline since February. This shows how much the high valuation of technology stocks was built on the assumption that interest rates will rise gradually.

The yields on bonds shot up with the two-year yields. These yields track short-term expectations and rose nearly 3bps to reach a 22-month peak of 0.860%. Benchmark 10-year yields rose 1.4 basis points to 1.71%. This is the highest level in 10 years.

The overall currency index remained relatively unchanged at Wednesday’s levels. However, the greenback gained ground against the Canadian dollar and the Canadian yen, and stayed broadly the same against the euro. The dollar index could break from its nearly eight-year-old range, which could have profound implications for rivals.

As markets in the United States fell, Asian stocks markets also suffered a 1% drop while volatility indicators rose to new heights. Bitcoin fell more than 5 percent overnight, making it the most popular cryptocurrency among panic-stricken investors.

The money markets now price a nearly 80% chance of an increase in U.S. rates by March, and over 80 basis points cumulative rate rises in 2022. This is a remarkable shift considering investors only 3 months ago were anticipating a U.S. rate increase in summer 2023.

The following are key developments which should give direction to the markets on Thursday

Macro corner: UK PMI, German CPI, Europe Nov Producer prices, U.S. Dec ISM

Frankfurt: Schnabel, ECB President, gives a speech

Catering group Sodexo (PA:) beats first-quarter revenue forecast as schools reopen Graphic: US liquidity, https://fingfx.thomsonreuters.com/gfx/mkt/movanwjxgpa/US%20liquidity.JPG