Stocks fell in Europe and Asia yesterday as investor concern over the pace of economic growth hit shares in mining and retail sectors while the prospect of tighter monetary policy in the United States and Britain pushed up the dollar and bond yields.
US stock futures signalled a rocky start on Wall Street after the Federal Reserve raised interest rates, as widely expected, and signalled another hike could follow this year.
In emerging markets, Russian shares fell four per cent as risks grew of expanded sanctions and the price of oil fell.
European shares, already led down by mining stocks as the stronger dollar pushed metals prices lower, extended losses after data showed British consumers, who have been the drivers of the UK economy are feeling the impact of rising inflation.
US numbers on Wednesday showed a similar picture on the other side of the Atlantic – retail sales fell more than expected in May. In a sign that the squeeze on consumers may get tighter before long, three Bank of England policymakers voted to raise rates against five for keeping rates on hold. Economists polled by Reuters had expected a 7-1 vote in favour of no change.
The pan-European STOXX 600 index dropped 0.7 per cent, led lower by the retail sector, down 1.8 per cent and heading for its worst day in eight months, and the basic resources sector, which fell 1.4 per cent.
Britain’s DFS Furniture fell 21 per cent after the company said a dip in demand and customer uncertainty about the economic outlook meant it would not meet profit expectations.
The prime cause of rising UK inflation has been weakness in the pound, which has fallen 15 per cent against the dollar since topping $1.50 in the early hours of last June 24, when it initially appeared Britons had voted to remain in the EU.
Sterling edged up after the BoE decision but reversed course after finance minister Philip Hammond pulled out of a high-profile speaking engagement because of a deadly fire at a London tower block.
The euro was down 0.5 per cent at $1.1164, its weakest for more than two weeks, while the yen was down a similar amount at 110.07 per dollar.
Oil prices, which are having a negative impact on inflation worldwide, hit six-week lows with global inventories high and doubts over whether the Opec producers group would be able to implement agreed output cuts.
Brent crude, the international benchmark, was down 17 cents a barrel at $46.83.
The firmer dollar pushed gold down 0.4 per cent to $1,256 an ounce.