Asian and European stocks tanked Friday, accelerating a global selloff on fears over the impact of interest rate hikes that seek to tackle sky-high inflation.
The pound hit a two-year low at $1.2276, one day after the Bank of England (BoE) lifted UK borrowing costs to a 13-year peak and highlighted recession risks.
The euro jumped to 85.77 pence, which was last seen late last year.
Oil prices rebounded after key producers led by Saudi Arabia and Russia refused to lift output more than their planned marginal increase as they weighed tight supply concerns caused by Moscow’s invasion of Ukraine.
– ‘Sinking feeling’ –
“A sinking feeling has taken over financial markets at the end of a volatile week,” said Hargreaves Lansdown analyst Susannah Streeter.
“Investors are digesting the unpalatable implications of inflation and fretting that there will be a need for a bigger dose of the bitter medicine being administered to try and bring it under control.”
Asian equities tumbled after steep Wall Street losses Thursday, as traders contemplated a period of fierce monetary tightening by the US Federal Reserve.
The Fed on Wednesday lifted borrowing costs 50 basis points — the most since 2000 — and signaled more increases as inflation sits at the highest levels in decades.
Rate tightening increases borrowing costs for consumers and businesses, harming economic recovery from the pandemic.
– ‘Porcelain doll’ –
In the United States, the Nasdaq shares index — which is dominated by tech firms particularly sensitive to higher interest rates — plunged five percent Thursday, while the broader Dow and S&P 500 each slumped by more than three percent.
That selloff filtered through to Asia, where Hong Kong tanked 3.8 percent Friday as tech firms took a hit.
“Concern about inflation is the culprit and the wild swings we’ve seen this week are a reminder that sentiment is about as fragile as a porcelain doll,” noted AJ Bell investment director Russ Mould.
“The other fear is that the cure for inflation, higher rates, could be as bad as the disease if they choke off growth and even lead to recession.”
Markets have also been battered this year by economic fallout from the raging Ukraine conflict.
Adding to the angst is weakness in China’s economy caused by strict lockdowns and other containment measures as officials struggle to bring a virus flare-up under control by sticking to a zero-Covid policy.
In foreign exchange, the pound remains plagued by the BoE’s forecast that UK inflation would top 10 percent and the economy contract later this year.
– Key figures at around 1050 GMT –
London – FTSE 100: DOWN 0.8 percent at 7,447.38 points
Frankfurt – DAX: DOWN 1.0 percent at 13,765.05
Paris – CAC 40: DOWN 1.1 percent at 6,296.04
EURO STOXX 50: DOWN 1.1 percent at 3,655.75
Hong Kong – Hang Seng Index: DOWN 3.8 percent at 20,001.96Â (close)
Shanghai – Composite: DOWN 2.2 percent at 3,001.56 (close)
Tokyo – Nikkei 225: UP 0.7 percent at 27,003.56 (close)
New York – Dow: DOWN 3.1Â percent at 32,997.97 (close)
Brent North Sea crude: UP 2.0Â percent at $113.12 per barrel
West Texas Intermediate: UP 1.9 percent at $110.34 per barrel
Euro/dollar: UPÂ at $1.0558 from $1.0542 on Thursday
Pound/dollar: DOWNÂ at $1.2335 from $1.2362
Euro/pound: UP at 85.60 pence from 85.28 pence
Dollar/yen: UP at 130.44 yen from 130.20 yen