European and Asian stock markets slumped Thursday following the worst session on Wall Street since February on heightened global economic strains, including mounting worries over high US interest rates and trade battles.
With rising rates pushing investors to reconsider the US growth outlook and move out of stocks, US President Donald Trump blamed “crazy” policies of the Federal Reserve for contributing to financial market turmoil.
Following sharp falls of around four-six percent on Asia’s main stock markets, Europe managed to keep its losses down, with London down 1.8 percent in mid-morning deals.
The dollar was down against the euro and yen, while Brent North Sea crude oil tumbled almost two dollars.
“Wall Street weakness initiated this domino effect, with Asian markets dropping sharply and European markets playing catch-up,” noted Richard Hunter, head of markets at Interactive Investor.
“In the absence of a specific trigger, investors are currently voting with their feet due to mounting concerns around trade tensions and the impact on global growth, higher interest rates in the US, and a potential rotation away from equities due to rising bond yields,” he added.
International Monetary Fund chief Christine Lagarde on Thursday defended central bank rate hikes in a veiled rebuke to Trump. Lagarde said central bank rate increases such as those by the policy-setting US Federal Reserve were justified by economic fundamentals.
“It is clearly a necessary development for those economies that are showing much improved growth, inflation that is picking up… unemployment that is extremely low,” she told a press briefing in Bali, host to annual meetings of the IMF and World Bank this week.
The IMF meanwhile on Tuesday cut its global GDP growth forecast by 0.2 percentage points to 3.7 percent for both 2018 and 2019, citing the economic uncertainties.
“All bets are off,” warned Stephen Innes, head of Asia-Pacific trading at OANDA, adding that markets were “fraught with peril”.
“The US equity bloodbath is taking no prisoner,” he said.
Among Asia’s biggest stock market losers Thursday were Shanghai and Taipei, closing down 5.2 and 6.3 percent respectively.
Chinese stock markets plunged to their lowest levels in four years.
“Interest rate put aside, the Sino-US trade spat is to blame for the October market rout because people are worried the friction would evolve into a political confrontation,” Guangzhou Wanlong Securities said in a research note.
The steep drops followed Wednesday’s plunge in New York, with the Dow Jones dropping nearly 830 points — the biggest fall since February — after Trump’s latest criticism of the Federal Reserve.
“I think the Fed is making a mistake,” Trump told reporters as he arrived for a campaign rally ahead of the US mid-term elections.
Trump has repeatedly touted Wall Street records as proof of the success of his economic programme. But he downplayed the first major drop in months, saying it was a “correction that we’ve been waiting for”.
European markets are meanwhile struggling also owing to tensions between Brussels and Rome over Italian budget plans that have revived fears about the eurozone. Also simmering are the stalled Brexit negotiations between Britain and the EU.
“It’s just a beginning,” CEB International research head Banny Lam told Bloomberg in reference to equities turmoil.
“The US tech bubble may take a while to burst and we are facing many external uncertainties — trade wars, risks in emerging markets currencies and oil price.”
Many of the biggest US names fell hard in Wednesday’s session, with Apple, Boeing and Facebook all slumping more than four percent and Amazon, Nike and Microsoft shedding more than five percent.
Stocks are under pressure after the yield on 10-year US Treasury bonds jumped above three percent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve rate hikes.
Key figures around 0915 GMT
London – FTSE 100: DOWN 1.8 percent at 7,017.94 points
Paris – CAC 40: DOWN 1.5 percent at 5,127.55
Frankfurt – DAX 30: DOWN 1.3 percent at 11,557.82
EURO STOXX 50: DOWN 1.5 percent at 3,219.16
Hong Kong – Hang Seng: DOWN 3.5 percent at 25,266.37 (close)
Shanghai – Composite: DOWN 5.2 percent at 2,583.46 (close)
Tokyo – Nikkei 225: DOWN 3.9 percent at 22,590.86 (close)
New York – Dow Jones: DOWN 3.2 percent at 25,598.74 (close)
New York – S&P 500: DOWN 3.3 percent at 2,785.68 (close)
New York – Nasdaq: DOWN 4.1 percent at 7,422.05 (close)
Euro/dollar: UP at $1.1547 from $1.1523 at 2100 GMT on Wednesday
Pound/dollar: DOWN at $1.3195 from $1.3222
Dollar/yen: DOWN at 112.25 from 112.35 yen
Oil – Brent Crude: DOWN $1.81 at $81.28 per barrel
Oil – West Texas Intermediate: DOWN $1.14 at $72.03 per barrel