London (AFP) – Wall Street and European stock markets retreated on Wednesday on fears of more interest-rate hikes as oil prices climbed, stoking fresh concerns about high inflation.
Crude futures jumped Tuesday after key OPEC+ producers Russia and Saudi Arabia extended supply cuts to the end of the year in efforts to boost their revenues.
Markets remained on edge on Wednesday as oil prices wobbled.
Wall Street’s three main indices were lower in late morning trading, with data showing activity in the US services sector unexpectedly picking up in August.
Europe’s main equity markets also ended the day lower.
Buoyant crude prices complicate efforts by global central banks to tame stubbornly-high inflation, dampening expectations of a pause in tighter monetary policy.
US interest rates are already at a two-decade high and some analysts warn that further increases could risk tipping the world’s top economy into recession.
“The extension of output cuts by Russia and Saudi Arabia through to the end of the year…may force the likes of the Federal Reserve to keep interest rates higher for longer,” said AJ Bell investment director Russ Mould.
“Markets are reacting negatively,” Mould said.
The European Central Bank next week announces its latest monetary policy decision, followed by the Bank of England and the US Federal Reserve one week later.
Bank of England Governor Andrew Bailey refused to exclude the possibility of further rate hikes in remarks Wednesday to lawmakers.
“I think we are much nearer now to the top of the cycle” of interest rate hikes.
“And I’m not therefore saying we’re at the top of the cycle because we’ve got a meeting to come but I think we are much nearer to it,” he added.
Brent North Sea crude had struck $90 per barrel Tuesday for the first time this year after Moscow said it would extend oil export cuts of 300,000 barrels per day and Riyadh added it would maintain its production cut of one million bpd.
“OPEC+ is…triggering fresh and increasing concerns about rising global inflation — which was just beginning to ease — meaning central banks could possibly push higher-for-longer interest rates,” added Nigel Green, head of financial advisory firm deVere Group.
But higher oil prices and interest rates could eventually tip economies into recession leading to lower demand.
“Concerns about the European and Chinese recovery are serving to temper some of the upside” in oil trading, said market analyst Michael Hewson at CMC Markets.
Elsewhere on Wednesday, data showed German factory orders fell more than expected in July, in the latest setback for Europe’s largest economy as it grapples with an industrial slowdown.
London investors set aside survey data Wednesday showing modest August growth in the UK construction sector.
Traders kept tabs also on Tokyo after the dollar jumped to a 10-month peak against the yen on increased US rate-hike expectations, and above the levels that led officials to step in with support last year.
Japan’s vice finance minister for international affairs Masato Kanda made a verbal intervention, saying authorities were ready to take action when needed.
The yen has bounced back but remains under pressure, with the Bank of Japan’s ultra-loose monetary policy, notably no rate hikes, expected to keep it from rallying much higher.
– Key figures around 1530 GMT –
New York – Dow: DOWN 0.6 percent at 34,435.19 points
London – FTSE 100: DOWN 0.7 percent at 7,426.14 (close)
Frankfurt – DAX: DOWN 0.2 percent at 15,741.37 (close)
Paris – CAC 40: DOWN 0.8 percent at 7,194.09 (close)
EURO STOXX 50: DOWN 0.7 percent at 4,238.26 (close)
Tokyo – Nikkei 225: UP 0.6 percent at 33,241.02 (close)
Hong Kong – Hang Seng Index: FLAT at 18,449.98 (close)
Shanghai – Composite: UP 0.1 percent at 3,158.08 (close)
Euro/dollar: DOWN at $1.0711 from $1.0722 on Tuesday
Dollar/yen: DOWN at 147.66 yen from 147.72 yen
Pound/dollar: DOWN at $1.2498 from $1.2564
Euro/pound: UP at 85.70 pence from 85.33 pence
West Texas Intermediate: UP 0.1 percent at $86.81 per barrel
Brent North Sea crude: FLAT at $90.01 per barrel
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