Global stock markets remained under pressure Friday, headed for one of their worst weekly performances in years, with analysts wondering whether to greet the sell-off as a healthy correction or fear even worse to come.
Europe’s key markets extended recent day’s heavy losses, following another spectacular downturn in Asian equities.
US stocks attempted a recovery in early business on Wall Street, but traders said that ongoing volatility prevented them from having any real trust in the rebound.
Both the Dow and the S&P 500 indices are 10 percent or more lower from their recent peaks, placing them in what market players call “correction” territory: more than temporary weakness, but still less than a “bear market” or possible crash.
“How long can the sell-off last? That is the million –- if not billion -– dollar question,” Fawad Razaqzada at Forex.com summed up market sentiment, saying that the absence of massive buyers at current low price levels was a worry.
– Not pretty –
“No one can say for sure, but things don’t look pretty out there given that the sharp falls haven’t been bought this time around. So, things could get ugly really quick,” he said.
In Europe, Frankfurt has also lost around 10 percent from its summit levels, while London and Paris, each down around eight percent from recent peaks, have fared only slightly better.
Volatility in world markets remained rampant, making predictions difficult, analysts said.
“The question is whether this is the technical trigger for wider market contagion or just a long overdue ‘healthy’ pullback for an over-extended market,” said Jasper Lawler at the London Capital Group.
While avoiding hazardous forecasts, many analysts said that economic fundamentals across the world are strong, although they conceded that markets don’t always mirror what is happening in the real world.
– ‘The harder they fall’ –
“We would make the point that the stock market can deviate massively from economic fundamentals in the short term,” Lawler said, adding that “much of what has helped keep the stock market moving higher is momentum, which is now reversing.
“We would liken the outlook for the US stock market to making a tackle in sports, ‘the bigger they are the harder they fall'”.
Catching up with more sharp losses in New York and Europe on Thursday, Asian trading floors were a sea of red Friday, with concerns about tighter interest rates, particularly in the United States.
Tokyo, Hong Kong and Shanghai were among the worst hit as investors piled into haven assets such as gold and the yen.
The sell-off followed another battering for Wall Street, where the Dow on Thursday suffered its second-heaviest daily points fall on record — the worst coming on Monday — after key US Treasury bond yields spiked on the likelihood of a number of rates rises this year.
After a blistering 2017 and January, markets worldwide have gone into a spasm in the past two weeks on fears that stronger growth and rising inflation will lift borrowing costs at a faster pace than expected.
– Emotional rollercoaster –
“Investments over the coming weeks could be something of an emotional roller-coaster ride,” Rebecca O’Keeffe, head of investment at Interactive Investor, told AFP.
A key trigger of the stocks pullback was a strong US jobs report a week ago that also showed rising US wage growth, fuelling speculation the Federal Reserve will lift rates more than the three times already forecast this year.
At the same time, the European Central Bank is on the verge of ending its crisis-era stimulus, while the Bank of England warned Thursday that its main interest rates could rise faster-than-expected in 2018.
“The message from ECB and Fed speakers, not to mention the Bank of England, is that rates will continue to climb because of the strength of the global economy,” said Greg McKenna, market strategist at AxiTrader.
With eurozone and British borrowing rates expected to go up, the euro and pound climbed against the dollar on Friday.
– Key figures around 1440 GMT –
London – FTSE 100: DOWN 0.5 percent at 7,136.71 points
Frankfurt – DAX 30: DOWN 0.6 percent at 12,181.75
Paris – CAC 40: DOWN 0.9 percent at 5,105.80
EURO STOXX 50: DOWN 0.9 percent at 3,345.71
New York – DOW: UP 0.8 percent at 24,045.99
Tokyo – Nikkei 225: DOWN 2.3 percent at 21,382.62 (close)
Hong Kong – Hang Seng: DOWN 3.1 percent at 29,507.42 (close)
Shanghai – Composite: DOWN 4.1 percent at 3,129.85 (close)
Euro/dollar: UP at $1.2252 from $1.2246 at 2200 GMT
Pound/dollar: DOWN at $1.3806 from $1.3912
Dollar/yen: UP at 109.04 yen from 108.74 yen
Oil – Brent North Sea: DOWN 95 cents at $63.87 per barrel
Oil – West Texas Intermediate: DOWN 79 cents at $60.36