European and Asian markets tumbled on Thursday after poorer than expected US inflation data stoked fears of further rate rises and lower growth in the world’s largest economy.
The UK’s FTSE 100, the Euro Stoxx 600 and Germany’s Dax index all fell by about 2.2 per cent at the open.
In Asia, Japan’s benchmark Topix closed down by 1.2 per cent while Australia’s S&P/ASX 200 slid 1.75 per cent. Hong Kong’s Hang Seng index declined 2.1 per cent, led by volatile Chinese technology stocks.
The slides come after data published in the US on Wednesday indicated that inflation continues to run hot in the US, raising expectations of another interest rate rise by the Federal Reserve.
The consumer price index published on Wednesday showed an 8.3 per cent rise on an annual basis in April. That was down from 8.5 per cent in March but above the 8.1 per cent figure anticipated by economists.
Core inflation, a measure that excludes food and energy prices and is closely watched, also exceeded forecasts at 0.6 per cent growth month on month.
David Chao, global market strategist at Invesco, said the latest inflation data “open the market speculation door again” for the possibility of a 0.75 percentage point rise in rates by the US central bank.
In bond markets, the 10-year Treasury yield fell by 4 basis points to 2.87 per cent. Yields fall as bond prices rise, indicating concerns over growth as investors seek haven assets.
Meanwhile, the UK economy unexpectedly shrank for the first time this year, with output falling 0.1 per cent between February and March, according to the Office for National Statistics.
Fears over global growth have increased after data this week showed that Chinese export growth fell to its lowest level in two years this month and the German and French manufacturing sectors slowed.
The US dollar index, which measures the currency’s strength compared to six others, rose 0.3 per cent to reach its highest level since 2002, in a sign that investors are increasingly convinced that there will be further rate rises.
Robert Buckland, an analyst at Citi, wrote in a note on Thursday: “Global equities are moving to price in the three key stagflation themes: higher inflation, slowing growth, and rising rates.”
Thursday’s fall in global stock markets marks the latest in a string of difficult days for equities. The tech-heavy Nasdaq Composite has fallen 27 per cent this year and has lost more than a fifth of its value in the past 30 trading days, analysts at Bespoke Investment wrote.
“An over-20 per cent six-week decline in the Nasdaq isn’t always followed by a recession, but more often than not, when lightning fills up the sky, thunder typically follows”, they said.