US shares open sharply lower as growth and inflation fears mount

The tech-heavy Nasdaq Composite slid further on Thursday, following a bruising morning for European stocks, as poorer than expected inflation data and signs of a slowdown in China stoke fears for the world economy.

The Nasdaq index dropped 2 per cent at the open. The blue-chip S&P 500 fell 1.2 per cent, after a 1.6 per cent drop on Wednesday, when data indicated that inflation continues to run hot in the US, raising expectations of more interest rate rises from the Federal Reserve.

“The market’s just not interested in jam tomorrow companies any more,” said Rosie Bullard, a portfolio manager at James Hambro & Partners, “There’s uncertainty both in the economic outlook and tech business models . . . given how much the tech industry has risen in recent years there is room for it to go down further.”

In Europe, the UK’s FTSE 100, the Euro Stoxx 600 and Germany’s Dax index were all down by about 2 per cent in afternoon trading, while Japan’s Topix and Hong Kong’s Hang Seng finished down 1.2 per cent and 2.2 per cent respectively.

Thursday’s fall in global stock markets marks the latest in a string of difficult days for equities. The Nasdaq has fallen 27 per cent this year and has lost more than a fifth of its value in the past 30 trading days, analysts at Bespoke Investment Group wrote.

“An over-20 per cent six-week decline in the Nasdaq isn’t always followed by a recession, but more often than not, when lightning fills up the sky, thunder typically follows,” they said.

Markets are nervous about persistent inflation after a consumer price index published on Wednesday showed an 8.3 per cent rise on an annual basis in April. That was down from 8.5 per cent in March but above the 8.1 per cent figure anticipated by economists.

“The Fed is under pressure to raise rates again and the move has to be quick into the summer. Then we will see an impact on [economic] growth in the second part of the year,” said Juliette Cohen, a strategist at CPR Asset Management.

Robert Buckland, an analyst at Citi, said: “Global equities are moving to price in the three key stagflation themes: higher inflation, slowing growth, and rising rates.”

In bond markets, the 10-year Treasury yield fell by 5 basis points to 2.86 per cent. Yields fall as bond prices rise, indicating concerns over growth as investors seek haven assets.

Growth is also under pressure from declining pandemic-era fiscal support, supply chain bottlenecks and a slowdown in China driven by stringent coronavirus lockdowns, Cohen added. “That’s a gloomy environment for markets,” she said.

The dollar index, which measures the currency against six others, added 0.6 per cent to 104.5 points, the highest level in more than 10 years.

Sterling fell 0.3 per cent against the dollar, as data showing that the UK economy unexpectedly shrank for the first time this year heaped further pressure on the nation’s currency.

The euro fell 1 per cent to $1.04, its weakest level since January 2017. China’s renminbi lost 1 per cent to 6.78 per dollar, in the latest sign that Beijing authorities are permitting the tightly controlled currency to weaken to stimulate flagging demand for the nation’s exports.

The price of copper, an indicator of economic sentiment due to the metal’s widespread use, dropped below $9,000 per ton for the first time in more than six months.

“Chinese demand is extremely weak,” said Colin Hamilton, analyst at BMO Capital Markets, even though smelter constraints that had held up prices in China had now eased.

Additional reporting by Neil Hume