Stocks slide as interest rates, conflict weigh on sentiment

AFP | Washington                                                     

The Daily Tribune – www.newsofbahrain.com

World stock markets slid yesterday on mounting worries over interest rates and an escalation of the Israel-Hamas conflict. US stocks opened lower after data showed that the US economy had expanded at an annual rate of 4.9 percent for the July to September period, the fastest pace in nearly two years.

The strong growth data shed “some objective light on why the Fed remains inclined to keep rates high for longer,” said market analyst Patrick O’Hare at Briefing.com.

Meanwhile a pick up in durable goods orders showed that business spending is continuing to increase, while first-time unemployment claims showed the jobs market remains strong. The US Federal Reserve has paused its interest-rate hikes, but has warned that they may need to go higher or stay higher for longer to bring inflation down further as the US economy remains resilient.

“The worry... is that strong economic data could force the Fed to go overboard with rate hikes,” said Callie Cox at eToro. “But on the whole, the US economy seems to be in a decent spot,” she added. “So if you’re a broad-market investor, I’d take some comfort in the fact that the worst-case scenario seems to be off the table.”

The European Central Bank yesterday joined the Fed in pausing its rate hikes, having raised them at the last 10 meetings. Record high interest rates appear to have dampened economic activity in the eurozone. The euro only got a modest bump from the widely expected decision, but eurozone stocks cut their losses.

ECB president Christine Lagarde warned yesterday that it would be “absolutely premature” to discuss when interest rates would be cut. Asian stocks fell sharply, tracking a retreat on Wall Street on Tuesday. It was fuelled by earnings gloom, a surge in US Treasuries and worries over a possible escalation of the Middle East crisis.

A warning from Israeli Prime Minister Benjamin Netanyahu that a ground invasion of Gaza was being prepared fanned a rush to safe-haven assets and sent crude up more than two percent Wednesday. Crude prices fell back yesterday despite the Israeli military saying troops had entered Gaza with tanks and infantry in an overnight “targeted raid”.

The corporate reporting season has seen Facebook parent Meta warn about the outlook next year, Google parent Alphabet post disappointing cloud figures and Texas Instruments issue bearish forecasts. Disappointing corporate reports from US tech titans have added to the sense of gloom among investors, and the burst of optimism that greeted China’s massive spending pledge this week has begun to fade. “Earnings are not providing the lift that investors were hoping for and stocks are suffering as a result,” OANDA analyst Craig Erlam said.