NEW YORK CITY: Global stock markets fell on Friday as traders from Wall Street to Frankfurt expected further interest rate hikes from central banks to combat elevated inflation amid growing worries about global growth.
Oil prices fell on concerns that high borrowing costs would further weigh on demand, while the dollar strengthened against its main rivals on the prospect of further rate hikes.
All three major US indices ended the day lower, with analysts feeling the market is headed for a fall after an earlier rise.
“Witching central bank talks” continue to weigh on markets, said Peter Cardillo of Spartan Capital.
There was mixed macro news this week, he said, but investor focus remained on Federal Reserve Chairman Jerome Powell and the Bank of England, which continued to tighten monetary policy.
Across the Atlantic, a closely watched survey showed that economic activity in the euro zone deteriorated to a five-month low in June on a slowdown in industrial production.
At the beginning of the year, the eurozone fell into a technical recession.
Meanwhile, UK private sector growth slowed to a three-month low in June as rising interest rates and stubbornly high inflation, fueled by rising food prices, exacerbate a cost-of-living crisis, data showed.
“The key theme in FX (forex) and most financial markets this week was clearly: risk aversion,” said City Index analyst Fawad Razaqzada.
“Weak data and very hawkish central banks have revived investor concerns about a hard landing,” he added, citing fears that economies could face a severe downturn due to rising borrowing costs.
Neil Wilson, chief market analyst at Finalto, said: “Sentiment is shifting from inflation risk to growth risk.”
The optimism that characterized the first half of June – fueled by hopes that the Federal Reserve was nearing the end of its rate-hike cycle – has given way to concerns that the US Federal Reserve may be planning further rate hikes to curb inflation.
In Europe, the Bank of England raised interest rates more than expected on Thursday, while Switzerland and Norway also hiked rates.
These hikes followed rate hikes last week in the euro zone, Australia and Canada.
Turkey also hiked interest rates this week, dramatically reversing its unorthodox monetary policy by nearly doubling borrowing costs after two years of cutting them.
“Fear of a global recession is back to the fore thanks to tightening central bank policies, which may have to cause some economic problems to contain core inflation,” said Stephen Innes of SPI Asset Management.
“In this environment, the current level of risk-free yields makes investing in equities less attractive compared to bonds,” he added.
With stocks falling in Asia, Europe and the United States on Friday, traders also kept their eyes on Beijing after a hoped-for raft of stimulus measures for the Chinese economy failed to materialise.
Although China’s central bank has cut borrowing costs, official details on its policy have been very limited.
On the corporate front, shares of Siemens Energy plummeted on Friday after the company warned that technical problems at its wind turbine were worse than previously thought.
In the US, shares of Goldman Sachs fell 1.5 percent after a media report suggested the company could face a hefty writedown for a 2021 acquisition of fintech (financial technology) company GreenSky.
And shares of CarMax closed 10.2 percent higher after reporting better-than-expected results.
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