LONDON: Stock markets on both sides of the Atlantic suffered a sharp decline Thursday as volatility continued to dog global equities trading.
Key European markets were well in the red, with Frankfurt down by three percent just before the closing bell, while Wall Street rapidly extended early losses in New York action and analysts forecast more price swings.
“US stocks are extending a recent pullback with volatility remaining elevated in the wake of yesterday’s whipsaw session,” brokers Charles Schwab said.
The British pound took flight after the Bank of England warned that the pace of interest rate rises could accelerate.
London’s benchmark FTSE 100 index went deeper into loss following the announcement, as a stronger pound tends to penalise multinationals with substantial income from abroad.
In its statement, the Bank said that that borrowing costs could rise sooner than expected “in order to return inflation suitably to target”.
But Lukman Otunuga at FXTM said that political uncertainty, especially around Brexit, could throw a spanner in the British central bank’s works, hampering an orderly rate tightening strategy.
“The horrible combination of Brexit uncertainty and political drama at home could obstruct the central bank’s efforts to raise rates,” he said.
– Bye-bye easy money –
Either way, the Bank’s more aggressive stance adds to the perception that the world’s key central banks are putting the squeeze on easy money, with the Federal Reserve also expected to raise rates and the ECB seeming to look for an early opportunity to phase out massive bond-buying.
In the eurozone, Paris and Frankfurt also closed dramatically lower — although Frankfurt managed to come off its worst levels — after Wall Street’s downturn drove them deeper and deeper into the red throughout the afternoon.
“Investors remain unconvinced that panic has disappeared from the markets,” said David Madden, market analyst at CMC Markets.
In Switzerland, Swiss Re shares were up more than four percent after the reinsurance giant confirmed it was in talks to sell a minority stake in the company to Japan’s SoftBank.
In the US, Twitter shares soared after the social network posted its first quarterly profit, having lagged fast-growing rivals for years.
After a long run of almost uninterrupted gains for world equity markets fuelled by cheap money and optimism about the economy, traders are navigating turbulent waters as central banks — led by the Federal Reserve — look to lift borrowing costs.
Last Friday’s strong US jobs and wage growth data, coupled with rising yields on bonds, brought an end to the record-setting global rally, sending Wall Street spiralling down before slamming world markets this week.
– Gold isn’t glittering –
Asia took the biggest hit on Tuesday, with Hong Kong and Tokyo among the worst affected but others also felt the pinch.
On Thursday however, Tokyo ended 1.1 percent higher while Hong Kong was up 0.4 percent, having fallen about eight percent over the previous five sessions.
On the downside, Shanghai tumbled 1.4 percent despite data showing Chinese imports smashed expectations and exports were supported by strong global demand.
Elsewhere, oil prices extended Wednesday’s sharp sell-off on concerns about increasing US production, offsetting an output cap by OPEC and Russia.
Among other key commodities, gold, rising 0.2 percent on the day, showed more modest gains than could have been expected at a time when investors pull money out of riskier assets.
“The culprit is the rising government bond yields boosting the dollar and making low and noninterest-bearing commodities like gold and silver less attractive to yield-seeking investors,” said Fawad Razaqzada at Forex.com.
“But if yields stop rising, then gold has a chance to stage a comeback,” the analyst said.
– Key figures around 1635 GMT –
London – FTSE 100: DOWN 1.5 percent at 7,170.69 points (close)
Frankfurt – DAX 30: DOWN 2.6 percent at 12,260.29 (close)
Paris – CAC 40: DOWN 1.0 percent at 5,151,68 (close)
EURO STOXX 50: DOWN 2.3 percent at 3,376.20
New York – DOW: DOWN 1.6 percent at 24,504.52
Tokyo – Nikkei 225: UP 1.1 percent at 21,890.86 (close)
Hong Kong – Hang Seng: UP 0.4 percent at 30,451.27 (close)
Shanghai – Composite: DOWN 1.4 percent at 3,262.05 (close)
Euro/dollar: DOWN at $1.2249 from $1.2269 at 2200 GMT
Pound/dollar: UP at $1.3954 from $1.3881
Dollar/yen: DOWN at 109.07 yen from 109.28 yen
Oil – Brent North Sea: DOWN 63 cents at $64.88 per barrel
Oil – West Texas Intermediate: DOWN 40 cents at $61.39