the stock market fell even more because interest rates might go up even faster than expected.
NEW YORK (AFP) –Friday, stock markets fell even more because of the possibility of more aggressive interest rate hikes to fight inflation. This made people worry that the world economy might go into recession next year.
After a healthy rally in recent weeks that was helped by signs that price increases were slowing, the US Federal Reserve, the European Central Bank, and the Bank of England dampened holiday cheer this week by raising borrowing costs again by large amounts and warning of more pain.
Related: Oil prices have stayed mostly the same despite hopes for higher demand and a rise in interest rates.
Even though inflation has started to go down in many of the world’s most important economies, it is still at or near multi-decade highs. This is because the price of energy has gone down.
Observers have warned that the economy could be headed for a period of stagflation, in which prices keep going up but growth stops.
Fawad Razaqzada, a market analyst at City Index Trading Group, said, “In a nutshell, it’s all about worries that the economy will slow down more quickly in 2023 than was thought before.”
Macroeconomic data have been weak lately, but there was still hope that the downturn could be short-lived and that a recession could be avoided in some places, like the US, because there were signs that inflation was reaching its peak in some places.
The latest rate hikes happened at the same time that data showed retail sales in the US and UK dropped in November. This is because consumers, who are a key driver of growth, are feeling the pinch from high prices and rate hikes.
HORIZONAL RECESSION?
All of the stocks in the Eurozone and London closed in the red.
Stocks on Wall Street also kept falling, with the major indices ending about 1% lower.
Craig Erlam, an analyst at OANDA, said that there was less chance of a “Santa rally.”
“Going into December, there was growing hope that policymakers could be a source of hope going into the new year, but instead, they’ve taken on the role of the Grinch and put a quick end to the celebrations,” he said.
Asia had also been down earlier, with Tokyo’s closing price being down 1.9%.
On the plus side, Hong Kong went up because of progress in talks about letting US officials audit Chinese companies listed in New York. This eased worries that big names like Alibaba and Tencent might be taken off the stock market.
The news helped Hong Kong traders a little bit more. Their mood has also been lifted by China’s move away from the bad for the economy “zero-covid” policy and by moves to make the city more open to tourists from other countries.
Related: At the Gulf conference in Riyadh, China’s Xi asked for the trading of oil in yuan.
And the South China Morning Post in Hong Kong said that the border with mainland China would be fully reopened next month. This would give the struggling economy another much-needed boost.
But the mood was dampened a bit by a US decision to put 36 Chinese companies on a trade blacklist, including the top makers of advanced computer chips. This will make it very hard for these companies to get any US technology.
