The stock markets in Europe and Asia experienced significant declines on Friday as investors grew increasingly anxious about the possibility of central banks implementing more interest rate hike, which could potentially push major economies into a prolonged recession. Leading the losses, Hong Kong’s Hang Seng (HSI) Index closed 1.7% lower, while Japan’s Nikkei 225 (N225) ended the day down 1.5%, and Australia’s S&P/ASX 200 dropped 1.3%. Mainland China’s stock exchanges were closed due to a public holiday.
US stock futures are indicating a downward trend, suggesting that Wall Street is headed for a week of losses. Federal Reserve Chair Jerome Powell stated on Wednesday that further interest rate increases were likely necessary later this year to bring US inflation down to the central bank’s target of 2%.
In response, the Bank of England surprised the market on Thursday by rate hike UK borrowing costs by half a percentage point, surpassing expectations, as recent data showed persistent inflation.
Furthermore, on Friday, it was revealed that Japanese inflation, excluding fresh food and energy costs, reached a 42-year high of 4.3%. This has fueled speculation that the Bank of Japan may reconsider its loose monetary policy and start tightening measures.
“The recent resumption of global monetary policy tightening has negatively impacted market sentiment across various regions,” stated Ken Cheung, Mizuho Bank’s Chief Foreign Exchange Strategist for Asia.
At 6:20 a.m. ET on Friday, Europe’s benchmark Stoxx Europe 600 index remained unchanged after experiencing a slight dip earlier in the day. France’s CAC 40 (CAC40) was down 0.3%, while Germany’s DAX (DAX) recorded a 0.7% decline.
London’s FTSE 100 (UKX) index slipped 0.2%, compounding losses from earlier in the week. It is now heading towards its worst week since the US banking turmoil in March.
