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Global markets fall as economy worries grow

Global markets fall as economy worries grow
The Nasdaq MarketSite in the Times Square neighborhood of New York, US. (Michael Nagle/Bloomberg)

Global markets have fallen this week as concerns over the impact of inflation on companies and households seeps into investor sentiment.

Between Monday morning and market close yesterday, US markets suffered steep declines not seen in weeks.

The S&P 500 and Dow Jones fell 2.4 per cent and the tech-heavy Nasdaq dropped 2.6 per cent.

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In Europe, the FTSE All Share was down 1.2 per cent, and the Dax was down 2.4 per cent, and in Asia the Nikkei 225 was down 1.6 per cent.

The “summer party” in equity markets seems to be coming to an abrupt end as hard-line central bank policymakers hover as “unwelcome guests”, said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

In the US, resilience in the economy is oozing away as investors await Fed chair Jay Powell’s comments at the central bank’s conference in Jackson Hole this week. 

Interest rates in the US have already been hiked thrice this year, and rate setters have been warning that there is further tightening to come.

Streeter said: “While central bank policymakers will find it hard to ignore the darker clouds gathering over the US economy, for now more rate hikes are likely in a bid to ensure a lid is fixed firmly on inflation.”

In Europe, the two bulwark economies of the EU, France and Germany, are both starting to stutter.

For the first time in 18 months the French economy shrank in August, according to S&P Global’s purchasing managers’ index, with a poor reading for Germany.

“Uncertainty reigns about the outlook ahead particularly as it’s feared the energy crunch that countries are currently facing could become even worse,” said Streeter.

The outlook is seemingly worse for the UK, where recent research has shown that inflation could hit 18.6 per cent in January, prompting analysts to warn that millions of people would be put into “dire straits” if this were to happen.

Adding to the uncertainty is the ongoing Conservative party leadership contest, which has left a caretaker prime minister in place until the new leader is elected in September.

sally.hickey@ft.com