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Wall Street stocks followed Europe lower on Friday, while government bonds rallied, after weak European economic data fanned fears of an impending recession.
The benchmark S&P 500 index was down 0.8 per cent in early trade and the tech-focused Nasdaq Composite fell 1.2 per cent. The moves echoed a sell-off across the Atlantic, where closely watched business surveys showed that the eurozone economy has slowed sharply.
The pan-European Stoxx 600 was down 0.6 per cent mid-afternoon, on track for its worst week since March. Germany’s Dax fell 1.5 per cent and London’s FTSE 100 lost 0.7 per cent.
The latest worrying economic news came as central banks in the US and Europe continue to battle to bring down stubbornly high inflation, with rising borrowing costs further stoking investor concerns of an economic downturn. Central banks in Switzerland, Norway and the UK raised their benchmark interest rates this week while Federal Reserve chair Jay Powell signalled further monetary tightening was on the way.
“The sell-off today shows you that the market hadn’t quite accepted that we are now in a very different economic regime,” said Georgina Taylor, head of multi-asset at Invesco.
Investors who had become used to “policymakers riding to the rescue” in times of economic hardship “are all having to adjust, and that’s what keeps the volatility in markets”, she added.
Wall Street’s blue-chip rally has stumbled in recent days, knocked by Powell’s remarks on Thursday, when he indicated two more quarter-point rate increases are likely by the end of the year. Economists have warned that the price for taming inflation may be recessions in large economies around the world.
The two-year Treasury yield, which is sensitive to changes in interest rate expectations, fell 0.08 percentage points to 4.71 per cent, reflecting rising prices, while the yield on a 10-year note went down 0.09 percentage points to 3.71 per cent. Bond yields fall when prices rise. The yield on two-year German bonds fell 0.1 percentage points to 3.14 per cent as investors sought the safety of government debt.
In currency markets, the euro lost 0.6 per cent against the dollar, trading at $1.089.
Earlier, Japan’s Topix index dropped 1.4 per cent after an important gauge of Japan’s consumer prices rose at its fastest pace in 42 years in May, increasing the challenges for the country’s central bank as inflation has proved stickier than expected.
The core consumer price index, which excludes volatile energy and food prices but includes alcoholic beverages, increased at an annual rate of 4.3 per cent, the fastest pace since June 1981.
