European equities markets were in the red Thursday as trade war fears ratcheted higher after the United States said it was looking at more than doubling threatened tariffs on a range of Chinese imports.
In London, investors’ expectations were vindicated as the Bank of England hiked its key interest rate by a quarter-point to 0.75 percent.
The British central bank’s nine-member monetary policy committee voted unanimously to raise rates for only the second time since the global financial crisis, but left unchanged its quantitative easing stimulus, just as most analysts had expected.
More broadly, European markets followed in the footsteps of Asian trading floors, which sank after the US administration confirmed it was considering hiking levies to 25 percent from the announced 10 percent on $200 billion of Chinese goods.
Should the US follow through, it would be “a considerable step-up in the trade dispute between US and China and would start to seriously threaten global growth”, wrote Konstantinos Anthis, head of research at ADSS.
Hussein Sayed, chief market strategist at FXTM, said investors were now waiting to see how China will react to prevent further falls in the markets.
“It will be interesting to see whether China will start using a more dangerous weapon against the US and selling large portions of the $1.2 trillion of Treasury Bonds it currently holds,” Sayed wrote.
“If China uses this weapon, we will see panic selling in the US and global equities, but it seems Chinese authorities are preserving this move for later.”
In Germany, the DAX blue chip index was down over 1.5 percent in afternoon trading, with analysts blaming US tariff threats that would hit car manufacturers especially hard.
Aside from the threatened duties on Chinese imports, President Donald Trump has also warned the US may impose hefty tariffs on cars imported from the European Union, after already imposing steel and aluminium levies.
‘Bravo to BoE’
Investors and analysts welcomed the BoE’s interest rate announcement, with head of research at London Capital Group Jasper Lawler tweeting: “Bravo to BOE for finally putting rates on course to something normal.”
However he added: “Shame it has left it so late that chances of a quick reversal are much higher.”
Rising interest rates are a boon for savers but ramp up the cost of credit for consumers and companies.
On currency markets, the pound edged slightly higher in response to the rate hike, rising from 1.3076 against the dollar before the meeting, to 1.3105 straight afterwards. London’s benchmark FTSE 100 shares index barely moved in the minutes following the announcement, and was down around 1.8 percent.
But because BoE policymakers agreed that any future rate hikes would be gradual, the pound’s reaction to the announcement was relatively muted.
The BoE’s decision came a day after the US Federal Reserve held its fire on interest rates, even as it highlighted the strength of the US economy and labour markets, indicating rate hikes ahead.
Key figures at 1140 GMT
London – FTSE 100: DOWN 1.8 percent at 7,556.20 points
Frankfurt – DAX 30: DOWN 1.5 percent at 12,542.23
Paris – CAC 40: DOWN 0.7 percent at 5,461.56
EURO STOXX 50: DOWN 0.9 percent at 3,121.90
Tokyo – Nikkei 225: DOWN 1.0 percent at 22,512.53 (close)
Hong Kong – Hang Seng: DOWN 2.2 percent at 27,714.56 (close)
Shanghai – Composite: DOWN 2.0 percent at 2,768.02 (close)
New York – Dow Jones: DOWN 0.3 percent at 25,333.82 (close)
Euro/dollar: DOWN at $1.1622 from $1.1659 at 2030 GMT
Pound/dollar: DOWN at $1.3105 from $1.3124
Dollar/yen: DOWN at 111.63 yen from 111.86 yen
Oil – West Texas Intermediate: DOWN 57 cents at $67.09 per barrel
Oil – Brent Crude: DOWN 36 cents at $72.03 per barrel