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Hong Kong/London
CNN
—
Stock markets in Europe and Asia fell on Friday as investors grew concerned that further interest rate hikes by central banks would plunge major economies into a prolonged recession.
Hong Kong’s Hang Seng (HSI) Index led the losses, ending down 1.7%. Japan’s Nikkei 225 (N225) ended the day down 1.5% and Australia’s S&P/ASX 200 lost 1.3%. Stock exchanges in mainland China were closed for a public holiday.
US stock futures are pointing lower, setting Wall Street up for a losing week.
Federal Reserve Chairman Jerome Powell said on Wednesday that bringing US inflation down to the central bank’s 2 percent target is likely to require further rate hikes this year.
This was followed on Thursday by a larger-than-expected hike in Britain’s borrowing costs by the Bank of England, which opted for a half-point hike after data earlier this week revealed surprisingly persistent inflation.
And earlier Friday, data showed that Japanese inflation excludes fresh food and energy costs Interest rates hit a 42-year high of 4.3%, fueling speculation that the Bank of Japan might reconsider its easy monetary policy and start tightening.
“The renewed acceleration in global monetary tightening dampened markets.” Sentiment across all regions,” said Ken Cheung, chief FX strategist for Asia at Mizuho Bank.
Europe’s benchmark index, the Stoxx Europe 600, was flat as of 6:20am ET on Friday after falling earlier in the day. The CAC 40 (CAC40) in France lost 0.3% and the German DAX (DAX) lost 0.7%.
London’s FTSE 100 (UKX) index slipped 0.2%, adding to losses earlier in the week. It is now facing the worst week since the US banking turmoil in March.
The Bank of England’s fight against inflation “has a potentially high cost to the UK economy, which could slide into recession later this year or next,” said Axel Rudolph, senior market analyst at online retailer IG.
ECB Governing Council members reinforced the hawkish tone this week despite signs that economic growth could falter again after a rebound earlier in the second quarter.
“The messages … remained focused on reassuring markets that policymakers would rather do too much than risk inflation going too high for too long,” Oxford Economic said in a note released on Friday.
The 20 countries that use the euro went into recession around the turn of the year. Data from a closely-watched survey released on Friday showed little growth in euro-zone manufacturing this month.
The Stoxx Europe 600 Banking Index, which tracks large EU and UK banks Lenders underperformed broader European equities, falling 1%. A prolonged economic downturn would be particularly painful for lenders, as it would increase the likelihood of loan defaults and cash-strapped individuals and businesses would be unable to keep up with their payments.
Fears of a global economic slowdown also put pressure on oil prices. Brent futures, the international benchmark, fell about 1%. US WTI crude oil lost 1.3%. Both are down nearly 4% this week.
— Anna Cooban contributed to the coverage.
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