Growth fears, US govt shutdown threat slam global stocks

European shares open negative following in footsteps of US, Asian markets

LONDON: World stocks extended a steep sell-off on Friday as the threat of a US government shutdown and further hikes in US borrowing costs compounded investor anxieties over the trajectory of global economic growth.

European shares opened in negative territory, following in the footsteps of US and Asian markets. The pan-European Stoxx 600 fell over half a per cent, continuing its slide towards lows not seen since the end of 2016.

Most European bourses and industry indices were in the red after the S&P 500 fell overnight, heading for its worst quarter since the dark days of the financial crisis in late 2008, with a loss of 15% so far.

The Nasdaq has shed 19.5% from its August peak, just shy of confirming a bear market.

Oil prices, which slid just over 4% on Thursday, were reclaiming some ground. The dollar, which had suffered its biggest one-day drop against the yen since November 2017 on Thursday, lost a further 0.1%.

“China is cooling and the euro zone is slowing down, and some of the economic indicators from the US have been a bit soft recently, but yet the Fed hiked rates and suggested that two more interest rate hikes were lined up for 2019,” said Michael Hewson, chief markets analyst at CMC Markets in London.



He said speculation the US economy could be headed for a recession has picked up, dampening global sentiment. “Fear about a US government shutdown is playing into the mix too.”

Eyes will be on US inflation numbers due later on Friday, which include the Federal Reserve’s preferred measure of core inflation.

E-Mini futures for the S&P 500 were off half a per cent, while MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.2%. The MSCI All-Country World index, which tracks shares in 47 countries, was down 0.2%. It was set for its worst week since March.

Japan's Nikkei lost 1.1% to close at its lowest since mid-September last year, after giving up 5.6% this week.

Australian stocks slipped 0.7%, hovering just above a two-year trough hit earlier in the session. Chinese blue chips lost 1.4%, in part after the US accused Beijing of orchestrating the hacking of government agencies and companies around the world.



Sentiment had turned sour on Thursday when the US Federal Reserve largely retained plans to increase interest rates despite mounting risks to growth. Markets were further spooked when US President Donald Trump refused to sign legislation to fund the US government unless he received money for a border wall, thus risking a partial federal shutdown on Saturday.

“Political brinkmanship in Washington is further heightening market uncertainty,” said Westpac economist Elliot Clarke. “Friday will be a tense day in Washington, and for financial markets, as a last-minute compromise is sought.”

Adding to the air of crisis was news US Defence Secretary Jim Mattis had resigned after Trump announced withdrawal of all US forces from Syria and sources said a military pullback from Afghanistan was on the cards.

The brittle mood showed on Wall Street where the Dow ended on Thursday with a loss of 1.99%. The S&P 500 dived 1.58% and the Nasdaq 1.63%.