Global stocks tumble on fears of more rate hikes, recession

July 07, 2023 (MLN): Global stocks tumbled on Thursday as investors fretted over the prospect of more US interest-rate hikes and the risk of recession, as APP reported.

Following surprisingly strong US economic data, Wall Street stocks spent the entire day in the red, with the S&P 500 finishing down 0.8%.

European markets had their worst session since March 15, with London closing 2.2% lower while Frankfurt shed 2.6 and Paris dropped 3.1% as the prospect of more rate hikes sent government bond yields higher.

While, Hong Kong led Asian losses, falling by 3%.

Analysts noted that the release Wednesday of the US Federal Reserve's meeting minutes set the stage for more interest rate hikes in the months to come.

"The clear hawkish guidance spooked markets," said Michael Hewson, chief market analyst at CMC Markets UK.

"This apparent willingness by central banks to crush demand, and risk pushing the economy into a recession to get inflation under control, is prompting investors to pare down their exposure to equity markets, hence today's sell-off," Hewson said.

The latest round of US economic data was much better than expected.

Thursday's reports included releases from payroll firm ADP estimating the US economy added 497,000 jobs last month, more than double the expected amount.

Also, a survey by the Institute for Supply Management pointed to solid growth in the services sector in June, again suggestive of a growing economy.

The ADP figures in particular were "clearly eye-opening" and a "bit of a shock to markets," said Interactive Brokers' Steve Sosnick, noting hopes that the Fed's earlier interest rate increases will bring down inflation.

While growth remains healthy for now, the prospect of more rate hikes has stoked worries that the Fed could tip the economy into recession, weighing on risk sentiment.

"If a rate hike this month wasn't already nailed on, it probably is now," said Craig Erlam, senior market analyst at trading platform OANDA.

"It's no longer a question of if the Fed hikes this month but how many more after that?," he added.

The yield on the 10-year US Treasury note, seen as a proxy for Fed expectations, pushed above four percent as futures markets predict another rate increase at the July 26 meeting.

The UK government's borrowing costs also rose as the yield on five- and 10-year bonds reached 15-year peaks. French and German bond yields also jumped.

Markets have also been worried about the health of the Chinese economy as another round of downbeat data this week highlighted the tough work facing authorities as they try to kickstart growth after years of zero-Covid-induced sluggishness.

Investors were also tracking Treasury Secretary Janet Yellen's four-day visit to Beijing, aimed at stabilizing tense relations between the world's two largest economies.

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