Wall Street stocks fell on Friday, putting US equities on course to close the week with significant losses after a profit warning from package delivery company FedEx amplified concerns about the economy.
The S&P 500 dropped 1.1 per cent at the opening bell in New York, with the more tech-focused Nasdaq Composite down 1.4 per cent.
The falls came after shares in FedEx dropped 22 per cent, in reaction to the group’s disclosure late on Thursday that it would close offices, freeze hiring and park aircraft in response to a decline in package shipping volumes.
The US company, seen as an economic bellwether because of its central role in global commerce, released preliminary quarterly financial results that missed analysts’ forecasts, while it also withdrew guidance for the remainder of the fiscal year as it warned of deteriorating “macroeconomic trends” in the US and abroad.
European stock markets also reflected the rising investor jitters about the state of the global economy. The regional Stoxx 600 lost 1.3 per cent by afternoon trading, while Germany’s Dax slipped 1.7 per cent. In Asia, Hong Kong’s Hang Seng index lost 0.9 per cent and Japan’s Topix fell 0.6 per cent.
The US S&P 500 had already fallen 4 per cent in the week to Thursday as traders worry that the Federal Reserve may begin raising interest rates more forcefully in its effort to tame the worst spell of inflation in four decades.
Trading in federal funds futures on Friday suggested that markets now expect the Fed to boost its main interest rate to 4.5 per cent by March next year, compared with forecasts of about 4 per cent at the start of this week.
That would mark a sharp rise from the range of 2.25 to 2.5 per cent at present and from near zero at the beginning of 2022. Higher borrowing costs typically weigh on economic growth and some economists expect the central bank may struggle to avoid tipping the world’s biggest economy into recession.
Hotter than expected August inflation data published on Tuesday, which showed a shallower slowdown in the annual rate of consumer price growth than had been expected, shocked many economists who had expected falling petrol prices to make a bigger dent in inflation. Concerns increased further on Thursday when weekly jobless claims data highlighted the persistent strength of the US labour market.
“The exceptionally strong August [inflation reading] diminished hopes of an imminent downshift in inflation and raised the risk of high inflation becoming even more entrenched,” according to BNP Paribas. The French bank noted that the data opened the door to the possibility of a 1 percentage point rate rise when Fed policymakers meet next week, an acceleration from two consecutive 0.75 percentage point increases.
In currencies, the dollar gained against both the pound and the euro as traders looked ahead to a major week for central banking news. In addition to the Fed, the Bank of England and Bank of Japan are both due to make monetary policy decisions next week.
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