Global stock markets sink on US Federal Reserve chief’s remarks

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Asian and European stocks mostly sank on Friday on hawkish comments from the Federal Reserve about its monetary tightening plans, sending the dollar sharply higher against the euro.

Frankfurt stocks dived 1.9 percent and Paris slid 1.7 percent in early afternoon eurozone deals, as investors shrugged off a survey showing that the bloc’s economic activity accelerated in April.

London shed 0.7 percent around midday with losses capped by the slumping pound that boosts share prices of multinationals.

Sterling slumped against the dollar after data showed tumbling retail sales as Britons face a cost-of-living crisis.

The pound briefly hit an October 2020 low as British Prime Minister Boris Johnson comes under renewed political pressure.

Oil prices slumped on demand fears arising from rising interest rates in the United States and ongoing Covid restrictions in China.

Markets remain shaken after Fed Chairman Jerome Powell exacerbated worries over higher US interest rates late on Thursday.

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Powell, who has signalled that the Fed will have to move more aggressively to counter decades-high US inflation, stated that a half-point interest rate increase was “on the table” for next month’s meeting, sending Wall Street tanking.

“Further hawkish comments from the Federal Reserve Chair put another cat among the pigeons in a day of violent swings,” said Richard Hunter, head of markets at Interactive Investor.

“Quite apart from the widely expected 0.5 per cent rate hike in May, this could also imply similar rises in subsequent months.” That stoked worries that the Fed could send the US economy’s pandemic recovery back into reverse.

“While the news should not have come as too much of a surprise, investors rushed for the exit as concerns of over-tightening and recession came back into focus,” said Hunter.

Sharp price rises are forcing major global central banks to hike interest rates, in turn curbing recovery from the pandemic.

Higher lending rates tend to weigh on companies’ share prices as they increase interest repayments on loans, while also further reducing consumers’ incomes.

In Asia on Friday, Tokyo stocks slid more than 1.5 percent even as inflation data from Japan was in line with market expectations.

But Shanghai finished marginally higher as some Chinese Covid curbs were eased and the nation’s securities regulator pushed banks and insurers to buy more stocks to lift ailing equities.

Most Asian markets dropped on Friday, trailing Wall Street losses triggered by the US Federal Reserve boss’ signal of an aggressive monetary policy tightening cycle and the ongoing economic impact of Covid-19 restrictions in China.

Tokyo ended more than 1.5 percent down even as inflation data from Japan was in line with market expectations and better than elsewhere in the world.

A falling yen, due mainly to the interest rate gap between Japan and the United States, had boosted trade on the Nikkei 225 all of this week, but it was not enough to alleviate concerns around the prospect of rate hikes in the United States.

And a report that Japanese Finance Minister Shunichi Suzuki and US Treasury Secretary Janet Yellen have discussed coordinated currency intervention to combat skyrocketing global inflation strengthened the yen on Friday.

Seoul, Sydney, Jakarta, Mumbai and Taipei were also all down.

But Shanghai pulled back marginally as some restrictions in China were eased and the country’s securities regulator pushed banks and insurers to buy more stocks to lift ailing equities — although the impact was minimal.

Hong Kong, which has been down all week and plummeted on Friday, also recovered slightly after the midday break thanks to a tech-stock recovery and was only fractionally lower at the close.

Fed Chair Jerome Powell’s comments that a half-point interest rate increase is “on the table” for next month’s policy meeting — with the United States facing decades-high inflation — reversed fortunes on Wall Street mid-session.

“Federal Reserve Chairman Powell stopped an intraday equity rally in its tracks overnight, after he signalled a 0.50 percent rate hike in May,” said Jeffrey Haley, Asia-Pacific Senior Market Analyst at Oanda.

“Mr Powell cited a tight labour market and inflation at multi-decade highs. Fellow President Mary Daly also suggested 0.50 percent hikes, while the bull in the monetary China shop, James Bullard, reiterated his enthusiasm for 0.75 percent hikes.”

Major US indices all finished down more than one percent, while the dollar pushed higher against the euro and other currencies.

Frankfurt and Paris enjoyed gains before the announcement but opened more than one percent lower on Friday under the weight of Powell’s comments. London, which ended flat, was also down in early trade.

Oil prices also took a hit over the Fed’s potential monetary policy tightening and dwindling energy demand in China.

Crude is trading 35 percent higher this year, with supply roiled by the war in Ukraine and protest-related disruptions in Libya. Calls for the European Union to ban Russian imports are also growing.

Agencies

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