Shares on Wall Street posted the biggest weekly decline in months after a FedEx Economic Barometer earnings warning rattled investors who are already jittery about an impending interest rate hike by the US Federal Reserve at its next meeting.
The blue-chip S&P 500 index fell 0.7% on Friday, taking weekly losses to 4.8%, the worst performance since mid-June. The tech-focused Nasdaq Composite fell 0.9% on the day for a weekly decline of 5.4%, also its worst week since June.
Stocks have fallen since data released on Tuesday showed U.S. consumer prices rose unexpectedly in August, despite falling gasoline prices. The rise in the inflation rate sparked a selloff as traders feared the Fed might start raising rates more forcefully to rein in prices at its meeting next week.
The Bank of England and the Bank of Japan are also expected to make monetary policy decisions next week, which could inject more volatility into the markets.
Friday’s stock moves came as FedEx shares fell 21%, a record single-day drop. This followed the group’s announcement on Thursday evening that it would close offices, freeze hiring and park planes in response to falling parcel shipping volumes.
The U.S. company, seen as a proxy for the economy due to its pivotal role in global trade, released preliminary quarterly financial results that missed forecasts and withdrew its guidance for the fiscal year as it put warns of deteriorating “macroeconomic trends” in the United States and abroad. .
The challenges for equity markets are a sign of how “underlying conditions have deteriorated quite sharply over the past couple of months,” said Roger Lee, head of UK equity strategy at Investec. “In the first half of the year, companies were able to push through price increases and pass them on to customers. We may be getting to the point where it becomes more difficult.”
As attention turns to the Fed’s policy decision on Sept. 21, trading in federal funds futures on Friday suggested that markets now expect the U.S. central bank to raise its key interest rate. interest at 4.4% by March. That’s up from the forecast of around 4% at the start of this week.
The reference rate, close to zero at the start of 2022, is now around 2.25 to 2.5%. Higher borrowing costs generally weigh on economic growth and some economists expect the Fed to struggle to avoid tipping the world’s largest economy into recession.
In addition to inflation data released on Tuesday, weekly jobless claims data on Thursday highlighted continued strength in the U.S. labor market, raising further concerns.
BNP Paribas analysts noted August inflation data open the door to the possibility of a 1 percentage point rate hike at next week’s Fed policymakers’ meeting, an acceleration from to two consecutive increases of 0.75 percentage points. The consensus expectation for next week, however, remains an increase of 0.75 percentage points.
“Whichever one the Fed chooses, the takeaways for this week are clear – there is still work to be done and expectations . . . should be adjusted accordingly,” wrote John Briggs, global head of the economy at NatWest.
European stock markets also reflected growing investor nervousness about the state of the global economy. The regional Stoxx 600 closed down 1.6% while the German Dax fell 1.7%. In Asia, the Hong Kong Hang Seng index lost 0.9% and the Japanese Topix 0.6%.
On the currency side, the dollar appreciated against the pound and weakened slightly against the euro.