Wall Street stocks sink into bear market as growth concerns mount

Global stocks rallied at the end of a turbulent week after China unveiled fresh stimulus measures to fight a growth slowdown in the world’s biggest emerging market.

Europe’s regional Stoxx 600 share index rose 1.5 per cent and London’s FTSE 100 gained 1.8 per cent. In Asia, Hong Kong’s Hang Seng index added 3 per cent and Japan’s Nikkei 225 rose 1.3 per cent.

The moves came after China cut its benchmark mortgage lending rate by a record amount. Chinese economic activity plunged last month, during stringent coronavirus lockdowns. Goldman Sachs this week cut its China growth forecast for 2022 to 4 per cent, from a previous projection of 4.5 per cent.

“Beijing wants to rescue the property markets, which have experienced the worst contraction in many years,” said economists at Nomura.

The Japanese bank cautioned that the impact of cutting the five-year loan prime rate from 4.6 per cent to 4.45 per cent would be “limited”, as “the Omicron wave and draconian lockdowns in around 40 cities have significantly limited mobility, employment, income and the confidence of Chinese households”.

S&P 500 futures gained 1.3 per cent in European trading on Friday. However, Wall Street equities were still headed towards their longest stretch of weekly losses since the dotcom bubble burst more than 20 years ago and some analysts predicted further falls to come.

“Markets are in a slow grind downward,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham. “It’s a combination of fear of a Fed mistake, if they raise rates too quickly, and fear that this inflationary trend is going to eat into spending, which then leads to a reduction in companies’ earnings.”

The S&P 500 would have to rally more than 3 per cent on Friday to avoid adding a seventh week to its losing streak. The blue-chip equity barometer has not fallen for such a sustained period since 2001, according to Refinitiv data.

Concerns about the global economy have intensified after the US Federal Reserve, the Bank of England and other major central banks raised borrowing costs and signalled more increases to come.

Inflation has soared to multi-decade highs in the US and Europe after economies reopened following coronavirus lockdowns and Russia’s invasion of Ukraine disrupted food and fuel supplies. US retailers Walmart and Target this week issued downbeat earnings reports, highlighting how companies and consumers are struggling with rising costs.

In bond markets, the yield on the benchmark 10-year US Treasury note was steady at 2.87 per cent, down from a high last week of 3.2 per cent. Treasury yields, which move inversely to prices, have fallen this week as growth jitters drove traders to seek low-risk assets.

Major currencies drifted on Friday, with sterling up 0.2 per cent against the dollar to just under $1.25 and the euro 0.1 per cent lower at just below $1.06.