European stocks slid on Friday after a dismal day on Wall Street, as investors worried about how far the US Federal Reserve will hike interest rates to curb inflation.
The regional stock index Stoxx 600 lost 1.2 percent, on track to end the week more than 3 percent lower. The London FTSE 100 lost 0.7 percent and the German Xetra Dax 1.1 percent.
The bearish sentiment reflected an overnight session in US equities, as investors worried about the likely pace of rate hikes and the potential for aggressive monetary tightening to trigger a recession.
The tech-heavy Nasdaq Composite stock index fell 5 percent on Thursday, marking its biggest single-day drop since June 2020, when traders sold shares in big-name growth companies like Tesla and Apple. The broad-based S&P 500 lost 3.6 percent.
The US Federal Reserve hiked interest rates by 0.5 percentage point on Wednesday, a move that initially lifted market sentiment by easing worries of a 0.75 percentage point hike. This upside sentiment was quickly overshadowed by jitters about how far borrowing costs would need to rise.
“We don’t know how much central banks need to do to curb inflation,” said Emmanuel Cau, head of European equity strategy at Barclays. “Without feeling like it’s peaking or slowing down, markets will remain choppy.”
US futures markets fell on Friday ahead of monthly US jobs data, which investors will be watching for signs inflation – already at a 40-year high – may be worsening. Futures on the Nasdaq 100 traded 0.5 percent lower. S&P 500 contracts fell 0.4 percent.
“In our view, the Fed will not be able to achieve a soft landing and a recession is imminent,” said Deutsche Bank strategist Jim Reid.
The yield on the 10-year US Treasury bond, which rose above 3.1 percent on Thursday, rose 0.01 percentage point to 3.08 percent on the day.
Economists polled by Reuters expect the April nonfarm payrolls report to show average wages rose more than 5 percent year-on-year for the fourth straight month.
“A strong jobs report could be viewed positively as it suggests the economy is strong, growth is good and we don’t have to worry too much about a slowdown [caused by higher interest rates], said Caroline Simmons, UK chief investment officer of UBS’s wealth management unit. But if the data showed that the labor market was tight, investors could conclude that “the Fed needs to act even faster,” she warned.
The dollar index, which measures the currency along with six others, slipped 0.4 percent. It remains near its highest level in 20 years, reflecting caution towards riskier assets driving demand for safe haven assets.
Brent crude rose 2.2 percent to just over $113 a barrel for a third consecutive day, buoyed by expectations of tighter supplies as the EU prepares to hit Russia with an oil embargo in response to the war in Ukraine .
The FTSE Asia Pacific Index of Asia Pacific equities ex-Japan fell 2.7 percent. Chinese President Xi Jinping added to the weak sentiment by reaffirming the nation’s commitment to its zero-Covid policy, which has confined tens of millions to their homes and slowed the economy.
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