Stocks sink on higher US rate worries
LONDON: Stock markets sank on Thursday as investors fretted over the prospect of more US interest-rate hikes and the risk to the global economy.
TOKYO: Electronic quotation boards display the rate of the Japanese yen versus the US dollar at a foreign exchange brokerage in Tokyo. – AFP.
Wall Street extended losses at the open while London was down 1.9 percent, Frankfurt more than two percent and Paris 2.6 percent in afternoon deals. In Asia, Hong Kong plunged three percent. Equities were weighed down heavily by minutes released Wednesday on the Federal Reserve’s last interest-rate meeting, which indicated that more hikes lay ahead aimed at bringing down elevated inflation.
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. The release Thursday of hotter-than-expected US employment data from payroll firm ADP, which estimated that private employers added 497,000 new jobs in June, raised the prospect of further Fed rate hikes. The strong figures come ahead of Friday’s closely watched government jobs data. The strength of the US jobs market has surprised economists who expected a bigger hit from the Fed’s aggressive policies to counter inflation.
“If a rate hike this month wasn’t already nailed on, it probably is now,” said Craig Erlam, senior market analyst at trading platform OANDA. “It’s no longer a question of if the Fed hikes this month but how many more after that?” The US central bank’s next rate-policy meeting is on July 26. The Fed minutes caused US bond yields—the rate the government pays to borrow money—to rise as investors anticipate more Fed hikes. The UK government’s borrowing costs also rose, with the yield on five-year bonds reaching a 15-year peak.
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. “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.”
Markets have also been worried about the health of the world’s second biggest economy, China, as another round of downbeat data this week highlighted the tough work facing authorities as they try to kickstart growth after years of zero-Covid-induced sluggishness. Investors were also tracking Treasury Secretary Janet Yellen’s four-day visit to Beijing, which aims to stabilise tense relations between the world’s two largest economies. – AFP.
