LONDON (AFP/APP): European stock markets tumbled Thursday on fears of recession, despite central bank efforts to tame soaring inflation.
One day after the Federal Reserve’s biggest US interest-rate hike in nearly 30 years, the Bank of England was set to increase borrowing costs for the fifth time in a row.
Economists forecast the BoE to hike its rate by a quarter-point to 1.25 percent, the highest since the 2009 global financial crisis, in a decision due at 1100 GMT. Thrown into the mix, the Swiss National Bank unexpectedly hiked rates for the first time since 2015. “European bourses are tanking on recession fears as central banks act aggressively to tame inflation,” City Index analyst Fiona Cincotta told AFP.
“While the move by the Fed was priced in, the SNB’s hike was a shock that caught investors off guard. Harder and faster rate hikes from central banks mean that a recession will be hard to avoid.”
Approaching the half-way stage in Europe, Frankfurt’s stock market led the losses with a drop of nearly three percent. London and Paris were down 2.3 percent.
Markets have been pummelled this year as soaring consumer prices — particularly on fallout from the Ukraine conflict — have forced central banks to tamp up borrowing costs.
That has intensified fear that the world economy, which is still in recovery from the deadly Covid pandemic, could lurch back into a lengthy downturn.
“Central banks remain the focus as the baton passes to the Bank of England from the Federal Reserve,” noted Richard Hunter, head of markets at Interactive Investor. Despite the Fed’s rate hike of 0.75 percentage points, “investors were sanguine on the basis of the news already being priced in”, he said.
“Opinion is now split between whether this accelerated tightening will be more beneficial for the US economy in the long run, or whether an overenthusiastic policy will result in recession.”
Elsewhere Thursday, Asian stock markets mostly closed lower and the dollar advanced.
Traders initially tracked Wednesday’s strong performance on Wall Street as the US central bank move signalled it is intent on fighting runaway prices, but Fed boss Jerome Powell said such big moves would not be commonplace. The size of the US rate hike had been expected after data showed inflation in the world’s biggest economy at its highest since 1981.
Oil prices extended losses Thursday on demand worries caused by new Covid containment measures in China and news of surging US production.
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