Berliner Boersenzeitung - Stocks sink as central banks hike rates and data fan recession fears

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Stocks sink as central banks hike rates and data fan recession fears
Stocks sink as central banks hike rates and data fan recession fears / Photo: Daniel ROLAND - AFP

Stocks sink as central banks hike rates and data fan recession fears

Global stocks sank Thursday as central banks hiked interest rates again and signaled they needed to go higher to tame inflation.

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Meanwhile, downbeat economic data out of China and the United States fueled recession fears.

Both the Bank of England and the European Central Bank mirrored the Fed's half-point hike on Wednesday to tackle soaring inflation, with Norway and Switzerland raising rates as well.

Sentiment was already hammered after the Fed suggested that it saw US rates topping out next year at 5.1 percent, higher than markets had predicted.

The BoE, which lifted its key rate to the highest level in 14 years, warned that labor market tightness and inflationary pressures justified "a further forceful monetary policy response," while the ECB delivered a similar message.

ECB president Christine Lagarde warned Thursday that inflation in the 19-nation eurozone was still "far too high" and more action was needed.

The world's major central banks are seeking to dampen red-hot inflation, which has been fueled partly by fallout from Russia's invasion of Ukraine.

"We have more ground to cover, we have longer to go and we are in for a long game," Lagarde told reporters.

Share prices headed south after the rate decisions, and kept falling.

Wall Street's main indices all finished down more than two percent.

In Europe, both Frankfurt and Paris suffered losses of more than three percent.

"The collapse in equity valuations comes as traders face up to an impending economic collapse where central banks seem to exacerbate rather than remedy the situation," said Joshua Mahony, senior market analyst at online trading platform IG.

- Fresh recession fears -

Rising rates fan recession concerns because they push up loan repayments for consumers and companies, denting expenditure, investment and economic activity.

Market analyst Patrick O'Hare at Briefing.com said "these (central bank) policy moves were expected, but that still hasn't helped matters given the understanding that higher rates will inevitably weigh on economic activity."

Economic data released Thursday fed recession fears.

China's retail sales plunged last month as Covid restrictions and a property market crisis hammered the world's second-largest economy.

In the United States, retail sales slid by 0.6 percent in November from October, with industrial output dropping as well.

The Fed warned Wednesday that the world's biggest economy would grow less than expected next year.

The eurozone was likely in a shallow recession too, the ECB said Thursday, as Britain's economy is expected to continue contracting through next year.

Oil prices slid on the dimmer economic prospects.

"The raising of inflation forecasts and downgrading of growth forecasts with interest rates remaining higher for longer appear to be re-rating market expectations of the demand outlook," said Michael Hewson at CMC Markets.

The dollar rose against the euro and other currencies, with the equity market rout steering investors to the greenback, which is considered a refuge investment in times of stress.

- Key figures around 1630 GMT -

New York - Dow: DOWN 2.3 percent at 33,202.22 (close)

New York - S&P 500: DOWN 2.5 percent at 3,895.75 (close)

New York - Nasdaq: DOWN 3.2 percent at 10,810.53 (close)

London - FTSE 100: DOWN 0.9 percent at 7,426.17 (close)

Frankfurt - DAX: DOWN 3.3 percent at 13,986.23 (close)

Paris - CAC 40: DOWN 3.1 percent at 6,522.77 (close)

EURO STOXX 50: DOWN 3.5 percent at 3,835.70 (close)

Tokyo - Nikkei 225: DOWN 0.4 percent at 28,051.70 (close)

Hong Kong - Hang Seng Index: DOWN 1.6 percent at 19,368.59 (close)

Shanghai - Composite: DOWN 0.3 percent at 3,168.65 (close)

Euro/dollar: DOWN at $1.0627 from $1.0682 on Wednesday

Dollar/yen: UP at 137.80 yen from 135.48 yen

Pound/dollar: DOWN at $1.2175 from $1.2426

Euro/pound: UP at 87.26 pence from 85.97 pence

Brent North Sea crude: DOWN 1.8 percent at $81.21 per barrel

West Texas Intermediate: DOWN 1.5 percent at $76.11 per barrel

burs-jmb/bys

(K.Müller--BBZ)