Global markets drop as concerns over higher interest rates worsen

The sell-off on Wall Street followed hawkish remarks from the Fed, which signalled a half-point rate increase in May

Wall Street followed the glum trend on Friday, finishing an ugly session with heavy losses and pushing major indices into the red for the week. AFP

Global stock markets dropped sharply on Friday as the latest hawkish commentary from the Federal Reserve sent investors fleeing equities as worries about higher interest rates worsen.

In Europe, London's FTSE 100 was down 1.4 per cent, Paris' CAC 40 retreated 2 per cent and Frankfurt's DAX dropped 2.5 per cent at the close.

Earlier in Asia, Tokyo's Nikkei 225 closed down 1.6 per cent and Hong Kong's Hang Seng lost 0.2 per cent. The Shanghai Composite settled 0.2 per cent higher as some Chinese Covid-19 curbs were eased and the nation's securities regulator pushed banks and insurers to buy more stocks to lift ailing equities.

Wall Street followed the glum trend, finishing an ugly session with heavy losses and pushing major indices into the red for the week amid anxiety over higher interest rates.

The Dow Jones Industrial Average finished down 2.8 per cent or nearly 1,000 points. The broad-based S&P 500 fell 2.8 per cent, while the tech-rich Nasdaq Composite Index tumbled 2.6 per cent.

The sell-off followed hawkish remarks on Thursday from Federal Reserve chairman Jerome Powell, who signalled the central bank could enact a half-point rate increase in May, twice the level of the typical Fed hike.

Helping to batter London, meanwhile, was a sterling slump against the dollar to an 18-month low after data showed tumbling British retail sales amid a cost-of-living crisis. The euro also slid against the US currency.

"[Price] risks are certainly more tilted to the upside, given the war in Ukraine and a potential embargo on Russian exports, but lockdowns in China and the risk of a Fed-driven economic slowdown are also significant," observed Craig Erlam, senior market analyst at Oanda.

Mr Powell stated on Thursday that a half-point interest rate increase was "on the table" for next month's meeting, sending Wall Street tanking.

"Further hawkish comments from the Federal Reserve chair put another cat among the pigeons in a day of violent swings," said Richard Hunter, head of markets at Interactive Investor.

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  Federal Reserve Chairman Jerome Powell holds a news conference following the announcement that the Fed raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, US. Reuters

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  The Central Bank of the UAE also increased its base rate for the overnight deposit facility (ODF) by half a percentage point point. Photo: Central Bank of the UAE

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  Residents with variable rate mortgages will feel the change as soon as their next monthly payment is due. Antonie Robertson / The National

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  Changes to credit card interest rates are expected within a billing cycle or two. Antonie Robertson / The National

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  Monthly instalments on personal loans and car financing are also set to rise. Razan Alzayani / The National

"Quite apart from the widely expected 0.5 per cent rate hike in May, this could also imply similar rises in subsequent months."

That stoked worries the Fed could send the US economy's pandemic recovery back into reverse.

"While the news should not have come as too much of a surprise, investors rushed for the exit as concerns of over-tightening and recession came back into focus," Mr Hunter said.

Nonetheless, Thomas Mathews, a markets economist at Capital Economics, forecast that "this hiking cycle looks increasingly likely to be a sharp but short one in most cases, potentially ending as soon as next year".

Sharp price rises are forcing major global central banks to hike interest rates, in turn curbing recovery from the pandemic.

Higher lending rates tend to weigh on companies' share prices as they increase interest repayments on loans, while also further reducing consumers' incomes.

In Asia earlier, Tokyo stocks slid more than 1.5 percent even as inflation data from Japan was in line with market expectations.

Agencies contributed to this report.