Global stock markets declined on Wednesday as investors remained worried about rising inflation and supply chain disruptions amid the ongoing pandemic. The US Federal Reserve signaled that it may start tapering its bond-buying program soon, while the European Central Bank warned of a slowdown in the eurozone economy.
The US Federal Reserve announced on Tuesday that it would keep its key interest rate near zero, but indicated that it may begin to reduce its $120 billion monthly asset purchases as soon as November. The Fed said that the economy has made “substantial further progress” toward its goals of maximum employment and price stability, but acknowledged that inflation remains “elevated” and supply chain bottlenecks are “restraining” growth.
The Fed’s statement came after data showed that US consumer prices rose 5.4% in September from a year ago, matching the highest annual inflation rate since 2008. The core inflation, which excludes food and energy, was 4% year-on-year, above the Fed’s 2% target. The Fed expects inflation to moderate in the coming months, but some analysts warn that it may persist longer than anticipated.
The prospect of the Fed tapering its stimulus measures weighed on the US stock market, which closed lower on Tuesday and extended its losses on Wednesday. The Dow Jones Industrial Average fell 0.8%, the S&P 500 dropped 0.9%, and the Nasdaq Composite slid 1.1%. The 10-year Treasury yield rose to 1.58%, the highest level since June.
ECB warns of eurozone slowdown as energy prices soar
The European Central Bank (ECB) also kept its monetary policy unchanged on Wednesday, but expressed concern about the impact of high energy prices and supply chain disruptions on the eurozone economy. The ECB said that the economic recovery “remains on track”, but warned that the outlook is “subject to high uncertainty” and that the risks are “tilted to the downside”.
The ECB’s caution came after data showed that the eurozone inflation jumped to 3.4% in September, the highest level since 2008 and well above the ECB’s target of close to but below 2%. The surge in inflation was driven by a spike in energy prices, which rose 17.4% year-on-year, amid a global shortage of natural gas and coal. The ECB expects inflation to ease in the medium term, but said that it will monitor the situation closely and adjust its policy if needed.
The eurozone stock markets also fell on Wednesday, following the ECB’s announcement and the weak performance of the US and Asian markets. The Euro Stoxx 50 index declined 1.3%, the German DAX lost 1.4%, and the French CAC 40 dropped 1.5%. The UK’s FTSE 100 index also slipped 0.8%, as Brexit-related issues and rising COVID-19 cases added to the pressure.
Asian markets slump as China’s growth slows
The Asian stock markets also suffered losses on Wednesday, as China reported its slowest economic growth rate since the pandemic began. China’s gross domestic product (GDP) expanded 4.9% in the third quarter from a year ago, missing the market expectations of 5.2% and down from 7.9% in the second quarter. The slowdown was attributed to the Delta variant outbreaks, strict lockdown measures, power shortages, and regulatory crackdowns on various sectors.
The Chinese authorities have taken steps to ease the economic pain, such as cutting the reserve requirement ratio for banks, increasing fiscal spending, and relaxing some of the curbs on the property and tech sectors. However, some analysts doubt that these measures will be enough to boost growth in the near term, given the persistent challenges facing the world’s second-largest economy.
The Chinese stock markets closed lower on Wednesday, with the Shanghai Composite index falling 0.3% and the Shenzhen Component index dropping 0.8%. The Hong Kong’s Hang Seng index also declined 0.6%, as the city faced its own power supply issues and social unrest. The Japanese Nikkei 225 index lost 1.1%, as the country’s exports slowed in September. The South Korean KOSPI index slid 1.5%, as the country’s central bank raised its key interest rate for the second time this year.