Photo: Reuters
Photo: Reuters

Fed hike raises recession fears, global stocks slide

Losses added to the worst year for world stocks since 2008 financial crisis

World equity markets continued a weeklong slide on Thursday amid investor concerns after the US Federal Reserve indicated it was set on its interest rate-hiking path next year even amid signs global economic growth is stuttering.

The Fed’s move on Wednesday to largely adhere to its plan for additional rate hikes over the next two years raised worries for market participants from Asia to Europe, as major indexes fell to their lowest in two years and investors flocked to the relative safety of government debt.

European shares fell 0.9%, with benchmark indexes in Germany, Britain and France all hitting their lowest since late 2016. Indexes in Japan and South Korea fell into a bear market, defined as a 20% decline from recent highs, joining benchmark indexes in Shanghai and Hong Kong.

MSCI’s global equity index fell to its lowest since May 2017, shedding nearly 0.8% as it headed for a fifth straight day of losses.

“It appears that risky asset markets wanted a stronger ‘put’ from the Fed given the ongoing recession obsession taking over the market sentiment," said Salman Ahmed, global investment strategist at Lombard Odier Investment Managers.

Briefing.com analyst Patrick O’Hare noted that “the stock market began to buckle and growth concerns became more prominent with signs of a slowdown abroad," and the Fed’s assurances made that it could change its policy course, were not enough to reassure investors.

“The stock market is waking up today to a new world order that it has had some nightmares about in previous weeks and months," O’Hare said in a research note. “Specifically, it is waking up to the reality that the Jerome Powell-led Federal Reserve isn’t inclined to ride to its rescue with market-friendly policy actions and pronouncements."

On Wall Street, the Dow Jones Industrial Average fell 139.99 points, or 0.6%, to 23,183.67, the S&P 500 lost 8.49 points, or 0.34%, to 2,498.47 and the Nasdaq Composite dropped 6.73 points, or 0.1%, to 6,630.09.

The Fed on Wednesday stuck by a plan to keep withdrawing support from an economy it considers robust, and hiked key overnight lending rates as expected by 0.25% point.

Also Read: The US Fed weighs growth against market fragility

It said “some further gradual" rate hikes would be needed in the year ahead, with policymakers projecting two rises on average next year instead of the three predicted in September.

Although largely in line with expectations, that tweak did little to soothe investor concerns over slowing world growth, US trade tensions with China, and tightening monetary conditions for companies in the world’s biggest economy.

The equity losses added to the worst year for world stocks since the 2008 global financial crisis, with MSCI’s 47-country world stocks index down 10%.

Nearly $7 trillion has been wiped off global stock markets this year, with emerging markets trampled flat by a charging dollar.

The angst in equity markets pushed investors towards the safety of government bonds.

German 10-year government bond yields, the euro zone benchmark, fell to their lowest in nearly seven months. Other high grade euro zone bond yields also fell. Benchmark 10-year US notes last rose 3/32 in price to yield 2.7654%, from 2.776% late on Wednesday.

Oil prices, meanwhile, slumped as worries about oversupply and worldwide demand for energy pushed prices back towards their lowest levels in over a year.

US crude fell 2.5%to $46.92 per barrel, while Brent fell 2.1% to $56.04 per barrel.

The dollar index fell 0.55% percent, with the euro up 0.54% to $1.1436.

AFP contributed to this story.

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