A jittery, volatile week on global financial markets has burst into a frenzy of selling, triggered by heavy losses on Wall Street and comments by Donald Trump describing US interest rate hikes as “crazy”.
The Nikkei index in Tokyo fell by almost 4% on Thursday, while in Hong Kong the index was down 3.25% and Shanghai was off 2.5% and at their lowest mark for four years.
In Sydney the benchmark S&P/ASX200 index was down almost 2%, slipping below the 6,000-point mark for the first time since early June.
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The selling was triggered by a fall of more than 800 points in the Dow Jones industrial average on Wall Street on Wednesday. It was the worst drop in eight months and was led by sharp declines in technology stocks. In earlier trade in Europe the FTSE100 index lost 1.3% and the German Dax was dropped 2.2%.
Despite a booming US economy, low inflation and low unemployment, investors are concerned about rising bond yields that have been drawing money out of the stock market, and rising US interest rates.
“It’s a bit of a bloodbath,” said Ed Campbell, senior portfolio manager at QMA, the asset management branch of Prudential Financial in New York. “It’s primarily the cumulative effect of interest rate moves over the past five days and news reports about trade impacting companies.”
Donald Trump has complained for weeks that the Federal Reserve has been hiking interest rates too quickly and that it risks choking off economic growth.
Trump has boasted about the rise of US stock markets to record highs under his presidency and played down Wednesday’s sell-off, describing it as a long-awaited “correction”.
“Actually it’s a correction that we’ve been waiting for a long time, but I really disagree with what the Fed is doing,” Trump told reporters before a political rally in Pennsylvania. “I think the Fed has gone crazy,” Trump said.
Investors have also become concerned that escalating tensions between the US and China over trade will lead to a slowdown in global demand.
The Chinese economy was already showing signs of weakening, and US tariffs on billions of dollars worth of goods could threaten the country’s massive export industries. China’s central bank cut the reserve requirement for banks on Sunday in order to pump around $100bn into the economy.
The Chinese yuan slipped against the dollar again on Thursday as Beijing tries to mitigate the impact of US tariffs. But it was the only currency across the region that was feeling the pressure from higher bond yields as the Australian dollar slipped under US71c.
“The yuan has already weakened significantly, to offset the tariffs announced so far,” said Alan Ruskin, Deutsche’s global head of G10 FX strategy in Sydney. “Further weakness could exacerbate concerns of a self-fulfilling flight of capital, and a loss of control.”
In Australian trade, tech, financial and resources stocks were all under the pump. Energy and consumer staples were also more than 2% lower, and only gold miners offered any relief as investors sought a safe haven. The big four banks were between 1.9 and 1.33% lower, with ANZ leading the quartet down.
- Stock markets
- Chinese economy
- Global economy
- US economy
- Donald Trump
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