Stock markets slump on higher US rate worries

Major stock markets slumped Thursday, with the biggest falls in Paris and Hong Kong, as investors fretted over the prospect of more US interest rate hikes and the risk to the global economy.

The dollar retreated on profit-taking after winning support from expectations of higher US borrowing costs. Oil prices steadied.

“US stocks are poised for a soft open as global recession fears sink risk appetite,” noted Edward Moya, senior market analyst at OANDA trading group.

Equities were weighed down heavily by minutes from the Federal Reserve’s last interest-rate meeting, which indicated that more hikes lay ahead aimed at bringing down elevated inflation.

The outlook, revealed Wednesday, added to worries about the global economic outlook.

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Another round of downbeat data out of China this week highlighted the tough work facing authorities as they try to kickstart growth after years of zero-Covid-induced sluggishness.

Traders were looking ahead to key US jobs data due before the weekend, as well as watching Treasury Secretary Janet Yellen’s four-day visit to Beijing that aims to stabilise tense relations between the world’s two largest economies.

The Fed minutes showed policymakers were split on the decision to stand pat last month after 10 straight rate increases, surprising some commentators and dealing a blow to hopes the bank was nearing the end of its tightening cycle.

Those backing an increase cited a tight jobs market, stronger-than-expected economic activity and few signs that inflation was on the path to the US central bank’s two-percent target.

In the end, however, all 11 voting members on the policy committee supported the pause, though the minutes said “almost all” agreed more tightening will likely be needed this year.

“It seems that the hawks were persuaded to toe the line in exchange for the prospects of further tightening later in the year,” said Rodrigo Catril at National Australia Bank.

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“The minutes also show that this bias for further hikes is fuelled by an overriding concern over elevated price pressures and a tight labour market.”

Others warned that a cut in borrowing costs, which had been keeping investor sentiment buoyed earlier in the year, was a long way off and officials would likely keep rates elevated for some time.

While growth remains healthy for now, the prospect of more rate hikes has stoked worries that the Fed could tip the economy into recession, weighing on risk sentiment.

All three main indices on Wall Street ended in the red Wednesday as investors returned from the Independence Day holiday.

– Key figures around 1100 GMT –

London – FTSE 100: DOWN 1.4 percent at 7,340.36 points

Frankfurt – DAX: DOWN 1.2 percent at 15,749.10

Paris – CAC 40: DOWN 1.9 percent at 7,175.87

EURO STOXX 50: DOWN 1.6 percent at 4,283.00

Tokyo – Nikkei 225: DOWN 1.7 percent at 32,773.02 (close)

Hong Kong – Hang Seng Index: DOWN 3.0 percent at 18,533.05 (close)

Shanghai – Composite: DOWN 0.5 percent at 3,205.57 (close)

New York – Dow: DOWN 0.4 percent at 34,288.64 (close)

Euro/dollar: UP at $1.0886 from $1.0857 on Wednesday

Pound/dollar: UP at $1.2770 from $1.2704

Dollar/yen: DOWN at 143.86 yen from 144.65 yen

Euro/pound: DOWN at 85.26 pence from 85.43 pence

Brent North Sea crude: UP 0.1 percent at $76.70 per barrel

West Texas Intermediate: UP 0.2 percent at $71.91 per barrel