European shares slid on Friday, following a grim day on Wall Street, as investors fretted over the global growth outlook.
The regional Stoxx 600 share index lost 1.2 per cent, putting it on track to end the week more than 3 per cent lower. London’s FTSE 100 lost 0.8 per cent and Germany’s Xetra Dax fell 1 per cent.
Bearish sentiment was reflected in a bruising session overnight in US stocks as investors worried about the likely pace of interest rate rises as an economic recession looms.
Wall Street’s technology-heavy Nasdaq Composite share index dropped 5 per cent on Thursday, marking its biggest one-day decline since June 2020. Traders dumped shares in big-name growth companies including Tesla and Apple, whose high valuations have been pressured by the US central bank tightening monetary policy. The broad-based S&P 500 lost 3.6 per cent.
Those jitters spread to Asia, where the FTSE Asia Pacific index of Asia Pacific stocks, excluding Japan, fell 2.8 per cent. Chinese president Xi Jinping added to the weak sentiment by reinforcing the nation’s commitment to its zero Covid policy, which has confined tens of millions of people to their homes and slowed the economy.
The Federal Reserve raised interest rates by 0.5 percentage points on Wednesday, in a move that initially lifted the market mood as it soothed concerns that the central bank would raise rates more aggressively. That bullishness capitulated quickly, however, as investors focused on the possibility of the Fed raising borrowing costs for as long as it takes to battle soaring consumer prices.
“We don’t know how much central banks need to do to slow inflation,” said Emmanuel Cau, head of European equity strategy at Barclays. “Without any sense of it peaking, or starting to slow, markets are going to remain unsettled.”
Early indications from US futures markets also indicated further falls to come on Friday. Futures on the Nasdaq 100 traded down 0.6 per cent while S&P 500 futures were 0.4 per cent weaker.
US Treasuries were calm ahead of monthly US jobs data due later in the session, which investors will scrutinise for signs that inflation — already running at a 40-year high — is getting worse.
“Our view is that the Fed won’t be able to achieve a soft landing and that a recession is coming,” said Deutsche Bank strategist Jim Reid.
The yield on the 10-year US Treasury note, which soared above 3.1 per cent on Thursday, was flat at 3.07 per cent.
Economists polled by Reuters expect the non-farm payrolls report for April to show that average earnings rose by more than 5 per cent, year on year, for the fourth consecutive month.
“A strong jobs report could be taken positively, as a suggestion that the economy is strong, growth is good and we don’t need to worry too much about a slowdown [caused by higher interest rates], said Caroline Simmons, UK chief investment officer at UBS’s wealth management unit.
But if the data showed the labour market was tight, investors may conclude that “the Fed has to act even faster,” she warned.
The dollar index, which measures the currency against six others, slipped 0.2 per cent. It remains close to its highest level in 20 years, reflecting caution towards riskier assets driving demand to haven assets.
Brent crude rose for a third consecutive session, up 1.6 per cent to just over $112 a barrel, underpinned by expectations of tighter supplies as the EU prepares to hit Russia with an oil embargo in response to the war in Ukraine.