Stock markets plunged deeper into the red on Friday after data showed US inflation rose to a 40-year high in May, beating analysts’ expectations.
In Europe, all major equity indices ended the week significantly lower.
Paris blue-chip CAC 40 shed 2.7 percent on Friday, Frankfurt’s DAX index fell 3.1 percent, Milan’s FTSE MIB shed 5.1 percent, Madrid’s IBEX plunged 3.7 percent and London’s FTSE by 2.1 percent.
Stocks on Wall Street were also deep in negative territory after US government data showed inflation hit 8.6 percent in May, the sharpest rise in consumer prices since December 1981 amid rising energy and food prices .
“US CPI for May came in stronger than expected,” said Stephen Innes of SPI Asset Management. “Inflation is at its peak again; what matters is that it’s across the board.”
The data has been eagerly awaited as investors hungry for clues on the direction of US interest rates at next week’s Federal Reserve meeting.
“Today’s US CPI release underscores the need for tighter monetary policy,” said Forex.com’s Fawad Razaqzada.
“As the Fed and others have acknowledged the need for ‘more’ monetary tightening to counter rising global inflation, this should keep the Nasdaq and other risk assets under pressure and support the US dollar against weaker currencies and gold,” he said.
Inflation is rising around the world, prompting the European Central Bank to finally join the Fed in tightening monetary policy when it announced Thursday it would hike rates next month.
Economists warn that rising inflation, fueled by soaring energy prices, could push leading economies into recession.
Adding to the unease was news that officials in China had again put millions of people on hold for Covid testing due to another flare-up in cases, dealing a blow to hopes of an economic reopening.
“Warning signs for the economy are emerging as weekly jobless claims (in the US) start to rise, China’s Covid situation will prove problematic for supply chains in the next few quarters and inflationary pressures widen and show no signs of easing,” he told Edward Moya, an analyst at trade group OANDA.
“It seems that the reduction in global growth forecasts will become a constant theme over the next few months and that should complicate how much more tightening we see from central banks,” he said.
The World Bank and the Organization for Economic Co-operation and Development lowered their forecasts for global economic growth for this year earlier this week.
– Key figures at 1535 GMT –
New York – Dow: down 2.5 percent at 31,476.37 points
London – FTSE 100: DOWN 2.1 percent at 7,317.52 (close)
Frankfurt – DAX: MINUS 3.1 percent at 13,761.83 (closing price)
Paris – CAC 40: DOWN 2.7 percent at 6,187.23 (close)
EURO STOXX 50: DOWN 3.4 percent at 3,599.20
Tokyo – Nikkei 225: down 1.5 percent at 27,824.29 (close)
Hong Kong – Hang Seng Index: down 0.3 percent at 21,806.18 (close)
Shanghai – Composite: up 1.4 percent at 3,284.83 (close)
Euro/Dollar: DOWN at $1.0516 from $1.0620 late Thursday
Euro/Pound: UP at 85.37p from 84.98p
Dollar/Yen: DOWN at 134.15 yen from 134.40 yen
Pound/dollar: DOWN at $1.2317 from $1.2495
North Sea Brent Crude: FALSE, up 1.3 percent at $121.48 a barrel
West Texas Intermediate: FALSE, up 1.2 percent at $120.04 a barrel