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Markets crash amid fears of US rate rises and China lockdowns

Global markets crash amid fears of US interest rate rises and ongoing lockdown in China

Global stock markets tumbled as fears of aggressive interest rate rises in the United States and strict lockdowns in China rattled investors.

In a grim start to the week, trading screens were a sea of red as the sell-off spread from Asia, across Europe and over to America before a later recovery on Wall Street.

Around £43billion was wiped off the value of British stocks as the FTSE 100 index slid by 1.9 per cent, or 141.14 points, to 7,80.54.

Markets tumble: A currency trader in Seoul, South Korea, holds his head as stocks slump in Asia in a sell off that has spread across to America before a later recovery on Wall Street

Russ Mould, investment director at AJ Bell, said: ‘The markets have fallen out of bed in a big way amid fears of a Covid lockdown in Beijing.

‘The prospect of further restrictions in China could lead to a poisonous mix of further inflationary pressure, as supply chains in the so-called “factory of the world” get disrupted, and weaker economic growth. 

The result could be stagflation – a slowing economy accompanied by surging prices – a brew few investors would be able to stomach.’

Alongside the slump in global stocks, oil crashed back below $100 a barrel and the pound fell towards $1.27 for the first time since July 2020.

Worries about renewed lockdown restrictions mandated by Beijing overshadowed the brief relief which swept the City following Emmanuel Macron’s re-election as president in France.

Investors fear that Beijing could follow Shanghai into a lockdown after a small outbreak of Covid cases. China is pursuing a zero-Covid policy – meaning it reacts with draconian restrictions when the virus reappears. There are also growing fears over the impact of higher interest rates in the US.

The Federal Reserve is widely expected to raise rates next week – and could even put them up by 0.5 percentage points rather than by 0.25 percentage points as it steps up its battle against inflation.

While pressure is on the Fed to bring inflation back under control, it is feared that aggressive rate hikes could tip the world’s largest economy into recession.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘The sigh of relief over the outcome of the French presidential election is being drowned out by the growing murmurs of discontent about the myriad problems mounting for the global economy. 

Super-hot inflation is settling like an ominous heat cloud over the world’s largest economy, and although a succession of steeper interest rate hikes might blast cold air onto demand, the worry is that the policy could blow up into a recession, which would have knock- on effects around the world.

‘The scourge of Covid continues, with China unwavering in its zero tolerance policy. As cases erupt in Beijing, there is concern that prolonged lockdowns will hit employment and lead to a sharp slowdown in growth as well as sparking fresh shipping logjams and supply chain issues.’

The losses in London were echoed on the Continent. France’s CAC fell 2 per cent and Germany’s Dax slid 1.5 per cent. In New York, the Nasdaq also fell.