Global Stock Market Declines as Fed Chair Comments on Inflation

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On Thursday, global shares experienced a predominantly downward trend, following a retreat in Wall Street triggered by remarks from the Federal Reserve chair, suggesting that inflation is still not under control.

Early trading in Europe saw a decline in benchmark indices as the central banks of Switzerland and Norway raised their benchmark interest rates to combat inflation. The Bank of England was also expected to follow suit.

The Bank of England is currently battling stubbornly high inflation, which has not receded as quickly as anticipated. Analysts’ consensus was that the bank would increase its main interest rate by a quarter-percentage point, reaching a new 15-year high of 4.75%. However, concerns were raised that it might opt for a larger half-point increase, which would adversely affect borrowers, particularly the approximately 1.4 million households in the U.K. that need to refinance their mortgages later this year.

In early trading, France’s CAC 40 declined by 1.2% to reach 7,174.46, while Germany’s DAX fell 0.7% to 15,907.25. The FTSE 100 in Britain slipped 0.8% to 7,495.94. The futures for the Dow Jones Industrial Average dropped by 0.1%, while the S&P 500 contract experienced a 0.2% decrease.

In Asian trading, Japan’s Nikkei 225 benchmark fell 0.9% to close at 33,264.88. Australia’s S&P/ASX 200 declined by 1.6% to reach 7,195.50. South Korea’s Kospi, on the other hand, gained 0.4% to reach 2,593.70. Hong Kong and Shanghai markets were closed due to the Dragon Boat Festival, a national holiday, providing traders with respite from concerns about potential renewed tensions in the U.S.-China relationship. These concerns emerged after President Joe Biden referred to Chinese President Xi Jinping as a dictator. Yeap Jun Rong, a market analyst at IG, commented that this countered the notion that the U.S.-China relationship was warming following Secretary of State Antony Blinken’s visit.

During Blinken’s visit to Beijing earlier in the week, both sides agreed to stabilize their strained ties. However, Blinken stated that China was not yet prepared to resume military-to-military contacts.

In its June Global Economic Outlook, Fitch Ratings noted a deterioration in the global growth outlook for the next year due to the expectation of higher interest rates worldwide. The report stated, “Global growth is displaying short-term resilience, but with persistent high core inflation, central banks will need to continue tightening their policies in the coming months.”

In his testimony to lawmakers on Wednesday, Fed Chair Jerome Powell mentioned that “the process of bringing inflation back down to 2% has a long way to go.” He reiterated the possibility of a couple more rate increases, although the pace of hikes is expected to slow compared to the rapid speed seen since early 2022. Powell likened this gradual slowdown to reducing speed from 75 miles per hour on a highway to 50, and then further slowing down as the destination approaches.

The high interest rates have already contributed to three notable failures within the U.S. banking system. Despite swift government intervention to provide support, the banking industry continues to face pressure.

In energy trading, benchmark U.S. crude saw a decrease of 47 cents, settling at $72.06 per barrel on the New York Mercantile Exchange. The international standard, Brent crude, also experienced a decline of 49 cents, reaching $76.63 per barrel.

Regarding currency trading, the U.S. dollar slightly strengthened against the Japanese

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• Federal Reserve
• Bank of England
• Fitch Ratings
• New York Mercantile Exchange
• Nikkei 225