Financial markets around the world fall when interest rates rise

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Share prices around the world fell on Friday on signs of a slowing global economy as central banks stepped up the pressure with more rate hikes.

The S&P 500 fell 2.5% in afternoon trade, a somber end to a tough week. It’s almost fallen to its low for the year, recorded in mid-June, as Wall Street remains mired in its downtrend.

For its part, the Dow Jones Industrial Average was on track to end the day 20% below its record from the start of the year, and to join other major indices that surpassed that threshold.

European stocks also fell on preliminary data showing business activity had its biggest monthly decline since early 2021.

Pressure was compounded by a new tax cut plan announced in London, sending UK yields higher as it would eventually force the central bank to raise interest rates further.

The US Federal Reserve and other central banks around the world cut interest rates this week in hopes of fighting inflation and promised big new rate hikes, but those moves will also mean reining in their respective economies, raising the prospect of recessions entails as growth slows everywhere.

Adding to Friday’s disappointing European business activity data, a report suggested activity in the United States is also slowing, albeit not as sharply as in previous months.

“Financial markets are now fully embracing the Fed’s harsh message that there is no turning back in the fight against inflation,” said Douglas Porter, chief economist at BMO Capital Markets.

Crude oil prices fell to their lowest levels since the start of the year on fears that a slowing global economy will cut fuel consumption.

At 1:25 p.m., the S&P 500 was down 2.53% while the Dow Jones was down 2.35%. Meanwhile, the Nasdaq lost 2.59%.

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