Asian and European stock markets slid Wednesday on worries over the global interest-rate outlook, while oil extended gains after an attack on a ship in the Red Sea stoked worries about crude supplies.
With crucial inflation data in the eurozone and the United States at the end of the week, investors are largely playing a waiting game with many inclined to sell after a recent run-up.
A forecast-beating read on US consumer confidence in the world’s top economy dented hopes that the Federal Reserve will have room to cut borrowing costs this year, while the mood was also soured by a weak Treasury sale that saw yields push higher.
“European markets followed the global risk-off sentiment on Wednesday, sliding lower as investors’ hopes of rate cuts in Europe and the United States were undermined,” said ActivTrades analyst Ricardo Evangelista.
In more gloom, US central bank official Neel Kashkari warned that decision-makers had not ruled out a possible hike if they continue to struggle to bring prices down to their two percent target.
“Kashkari’s latest comment about a lingering restrictive stance, stating that additional rate hikes haven’t been completely ruled out, has significantly dented investors’ risk appetite,” added Evangelista.
Wall Street ended mixed Tuesday on their first day after a long holiday weekend, with sentiment clouded by the government bond sale and the Conference Board gauge of May consumer confidence.
Minneapolis Fed chief Kashkari said that while monetary policy remained tight — rates are at two-decade highs — “I don’t think anybody has totally taken rate increases off the table”.
“I think the odds of us raising rates are quite low, but I don’t want to take anything off the table.”
His comments come after several other Fed officials said they were cautious about cutting too soon and wanted to see more data proving inflation was coming back down to two percent.
“I can tell you this, it certainly won’t be more than two cuts,” he warned.
Investors are now pricing in one cut before the year-end, compared with as many as six tipped in January.
Focus now turns to Friday’s US personal consumption expenditures (PCE) index — the Fed’s preferred gauge of inflation.
On the same day, eurozone inflation data for May will be published and a further cooling would reaffirm expectations of a June rate reduction from the European Central Bank.
In commodities on Wednesday, oil prices rose further on geopolitical concerns after a bulk carrier was attacked in the Red Sea, a key waterway for shipping and particularly crude.
The strike comes amid heightened concerns about tensions in the region and as Israeli forces continue a ground invasion of Rafah in southern Gaza.
Also on traders’ minds is the upcoming meeting of OPEC and other key oil producers that is expected to see them rollover output cuts.
– Key figures around 1030 GMT –
London – FTSE 100: DOWN 0.3 percent at 8,229.05 points
Paris – CAC 40: DOWN 0.9 percent at 7,983.10
Frankfurt – DAX: DOWN 0.6 percent at 18,563.93
EURO STOXX 50: DOWN 0.7 percent at 4,994.32
Tokyo – Nikkei 225: DOWN 0.8 percent at 38,556.87 (close)
Hong Kong – Hang Seng Index: DOWN 1.8 percent at 18,477.01 (close)
Shanghai – Composite: UP 0.1 percent at 3,111.02 (close)
New York – Dow: DOWN 0.6 percent at 38,852.86 (close)
Dollar/yen: UP at 157.24 from 157.14 yen on Tuesday
Euro/dollar: DOWN at $1.0843 from $1.0862
Pound/dollar: DOWN at $1.2752 from $1.2763
Euro/pound: DOWN at 85.04 from 85.09 pence
West Texas Intermediate: UP 0.8 percent at $80.50 per barrel
Brent North Sea Crude: UP 0.8 percent at $84.86 per barrel
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