World stocks dive on trade war fears, rate outlook

London: The world´s major stock markets fell heavily on Thursday as sentiment was rocked by fresh trade war fears with Donald Trump readying new sanctions on China.

Signs that the Federal Reserve will hasten its rate hike pace next year also weighed down equity markets, as did a perceived tighter bias at the Bank of England, traders said.

“Equities are firmly in the red, reacting to the trio of mixed guidance from the Fed (short term unchanged, long-term steeper hiking), the threat of a global trade war (Trump to announce tariffs on Chinese imports) and disappointing European PMIs,” said Michael van Dulken at Accendo.

Earlier, the data monitoring firm Markit reported that growth in eurozone business activity was at its slowest rate for over a year in March in its purchasing managers´ index (PMI), pointing to the economic recovery in the single currency area´s losing momentum.

The Bank of England left its leading interest rates unchanged, but two of the nine monetary policy committee members voted against that decision, which pointed to “a slightly more hawkish tone”, Accendo´s van Dulken said.

Wall Street started weaker as European stocks extended their losses.

“The markets remained in a bloody mood this Thursday,” said Spreadex analyst Connor Campbell.

On Wednesday, the Federal Reserve raised the key lending rate for the first time this year, citing a stronger outlook for economic growth, and hinted at a slightly more aggressive pace for hikes in 2019.

The dollar rebounded slightly Thursday, having slid Wednesday against most other units in a first reaction to the Fed meeting.

“Powell delivered the rate hike markets expected, but a more hawkish tone hints heavily at an increasingly aggressive rate tightening cycle, if not this year then certainly in 2019,” noted analyst Lee Wild at Interactive Investor.

Higher interest rates tend to weigh on stock markets because they increase loan repayments and therefore tend to bite into the bottom line — and reduce consumers´ disposable incomes.

At the same time however, they lift the rate of return on savings.

Trading floors remain edgy as it emerged Trump is expected to hit China over what Washington calls “theft” of US intellectual property.

The move would further strain tensions with Beijing after the White House unveiled controversial tariffs on imports of steel and aluminium, which sparked fury from world leaders.

China vowed to respond with “necessary measures to resolutely defend its legitimate rights and interests”.

Oxford Economics chief Asia economist Louis Kuijs, said: “The key risk is that it does not end with this modest baseline scenario.

“More measures may follow, and tit-for-tat responses could lead to escalation. Collateral damage in other economies will be significant and could further complicate the trade friction.”