Global shares slide as investors bet on interest rates staying high

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Global stocks fell on Friday, heading towards their worst week since March, as investors grappled with the prospect of a buoyant US economy keeping interest rates higher for longer.

Wall Street’s benchmark S&P 500 fell 0.4 per cent and the tech-focused Nasdaq Composite declined 0.8 per cent at the New York opening bell.

Global stocks have stumbled this week as robust US economic data stamped out hopes that the Federal Reserve — which took interest rates to a 22-year high last month — would start cutting rates soon.

The FTSE All-World index was poised for a weekly decline of 2.4 per cent, its worst performance since the US banking crisis in March sent global equities into a tailspin.

In Europe, the region-wide Stoxx 600 fell 1.1 per cent, on track for a weekly decline of almost 2 per cent and its worst monthly performance since September last year. France’s Cac 40 slipped 1 per cent and the FTSE 100 was down 1.2 per cent.

The US labor department on Thursday reported that the number of people applying for unemployment benefits declined in the week ending August 12, a sign that the country’s economy remains resilient in the face of higher borrowing costs.

“Basically, the market has downsized the extent of future cuts as the economy is just not lying down,” said Padhraic Garvey, regional head of Americas research at ING.

The equity sell-off reverberated in government debt markets earlier in the week. Yields on the benchmark 10-year US Treasury moved close to their highest levels since 2007 on Thursday before slipping 0.06 percentage points to 4.27 per cent on Friday. Bond yields rise as prices fall.

Yields on 10-year UK applies fell 0.04 percentage points to 4.71 per cent on Friday. Yields on the 10-year German Bund — Europe’s regional benchmark — declined by 0.06 percentage points to 2.64 per cent.

Traders’ nerves were stretched further by the continuous flow of weak economic data releases from China, which solidified fears that the world’s second-largest economy could take a while to fully rebound from three years of severe Covid-19 restrictions.

China’s CSI 300 stock index fell 1.2 per cent and Hong Kong’s Hang Seng shed 2.1 per cent. Japan’s Topix fell 0.7 per cent and South Korea’s Kospi slid 0.6 per cent.

China’s securities regulator on Friday announced a package of market-friendly reforms to try to “boost capital market investor confidence”, flagging a potential extension of trading hours for the country’s stock and bond markets, as well as lower transaction fees for brokers.

The renminbi strengthened slightly to trade at Rmb7.288 against the dollar but remained near its weakest level since November after the People’s Bank of China stepped up its defense of the currency.

The central bank set the daily midpoint — around which the currency is allowed to trade 2 per cent in either direction — at Rmb7.2006 to the dollar, well above market expectations.

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