by Elizabeth Howcroft
LONDON (Reuters) – European shares fell on Friday, with the yield on benchmark German 10-year bonds hitting their highest level since mid-June, as investors prepared to raise interest rates in the United States, while warnings from the World Bank and International Monetary Fund raised fears of a slowdown. .
The World Bank’s chief economist said Thursday he is concerned about a period of low growth and high inflation in the global economy. The International Monetary Fund said downside risks still dominate the global economic outlook, but it is too early to say whether there will be a widespread global recession.
Wall Street was sold off on Thursday after US economic data gave the Federal Reserve little reason to soften its aggressive rate hike stance.
The dovish tone continued during Asian trading, as data showed that the Chinese real estate sector contracted further last month.
As of 0815 GMT, the MSCI World Stock Index, which tracks stocks in 47 countries, was down 0.5% on the day and set for a fourth consecutive day of losses.
Europe’s index fell 1.2% and London 0.1%. It was down 1.8%.
Markets have posted a 75% chance of a 75bp rate hike and a 25% chance of 100bp when the Fed meets next Wednesday.
In the UK, retail sales fell more than expected, another sign that the economy is sliding into recession as the cost of living crisis slashes disposable spending for households.
“We are now seeing data confirming that the economy is indeed slowing,” said Axel Rudolph, market analyst at IG Group.
“I would expect stocks to dip below their March lows. If you’ve been in an environment where you have central banks aggressively raising interest rates, that has always resulted in historically bear markets.”
The British pound fell to a 37-year low against the US dollar.
It rose 0.3% to 110.13, still hovering near a 20-year high, and flat against the yen at 143.365.
The yen may fall towards three-decade lows before the end of the year, according to market analysts and fund managers.
The dollar’s strength pushed China past the 7 level against the dollar for the first time in nearly two years.
The euro was slightly lower at $0.9961. German 2-year bond yields reached an 11-year high after the European Central Bank Vice President said the economic slowdown in the Eurozone would not be enough to control inflation and the bank would have to keep raising interest rates.
German benchmark 10-year bonds rose 3 basis points on the day at 1.765% – after touching their highest levels since mid-June in early trade.
Oil prices rose, but were on track for a weekly decline amid fears of lower demand.