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Global stocks were hit by another wave of selling yesterday as worries over inflation, interest rates and China’s economic growth fuelled unease about the health of the world economy.

Europe’s main indices sank deep into the red, with falls in mining companies helping to push the FTSE 100 2.3 per cent lower at the close.

Weak economic data from China compounded concerns about whether more interest rate rises in the United States, the UK and elsewhere would tame soaring inflation without tipping the world’s largest economies into recession. Investors are also having to juggle the economic fallout from Russia’s war on Ukraine.

Wall Street also had a bruising session. Just after the closing bell, the blue-chip S&P 500 was down 3.2 per cent, having dipped below the 4,000-mark for the first time since April last year. The Nasdaq slid 4.3 per cent lower as investors continued to abandon technology stocks. Shares in Amazon fell by 5.2 per cent.

On Friday both the S&P and Nasdaq posted their fifth straight week of declines, their longest losing streaks in roughly a decade.

“Markets are digesting the start of a return to a more normal monetary policy environment,” Kristina Hooper, chief global market strategist at Invesco in New York, said. “Moving more aggressively raises the spectre of a recession, especially with all of these complications: high inflation, Russia’s invasion of Ukraine and Covid-related supply chain disruptions.”

The disappointing numbers from China helped to push oil prices down more than 5 per cent. Brent crude fell $5.92 to $106.47 a barrel, while the US West Texas Intermediate fell $6.16 to $103.61 a barrel.

Oil and mining shares were among the biggest fallers in London. Glencore shed almost 6 per cent to 458½p, while Anglo American sank 5.4 per cent to £33.00. Shell closed down 3.2 per cent at £22.25.

 

Recent data from the German and French manufacturing sectors pointed to slowdowns. The FTSE All-World monitor of global shares is down more than 16 per cent this year.

Central banks in the US, UK and Australia all raised interest rates last week, and investors are braced for more tightening to fight inflation.

Yesterday the Federal Reserve warned that a sharp rise in interest rates posed a big risk to financial stability and economic activity. The central bank’s latest stability report, published twice a year, said debt levels among businesses and individuals could be a concern.

 

The report is not an economic forecast, but highlights areas of concern.

Despite the Fed’s caution, Matt Stucky, portfolio manager at Northwestern Mutual Wealth, said: “The concern here is that the Federal Reserve is going to essentially ignore market conditions and equity market volatility and continue on with rate hikes.”

US Treasury yields eased after the benchmark ten-year note had earlier hit a fresh three-year high. Meanwhile, gold prices retreated by 1.2 per cent to $1,860 an ounce.

 

Source The Times 10/5/2022

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