Global stock markets retreat in anticipation of further interest rate hikes

Wall Street indices end multi-week gains on hawkish comments from Federal Reserve officials

US Federal Reserve chairman Jerome Powell has hinted at two more interest rate hikes this year. Bloomberg

Global stock markets ended in the red at the close of trading on Friday as investors kept a close watch on potential further interest rate hikes following hawkish comments from US Federal Reserve officials.

Fed chairman Jerome Powell said in his semi-annual testimony to US lawmakers that while the central bank would proceed with caution to tame high inflation, he hinted that the Fed was not done raising rates.

Mr Powell signalled two more hikes in 2023, a take echoed by San Francisco Fed president Mary Daly, who said it was "very reasonable" for the year.

That resulted in Wall Street indices snapping a streak of multi-week gains: the S&P 500 shed 0.77 per cent to end a five-week winning run, its best since November 2021, and the tech-heavy Nasdaq Composite declined more than 1 per cent to break an eight-week gain, its longest since March 2019.

The Dow Jones Industrial Average retreated 0.65 per cent.

"Federal Reserve chairman [Jerome] Powell didn’t say anything we didn’t know ... he said that the Fed will continue hiking rates, but because they are getting closer to the destination, it’s normal to slow down the pace," Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a note.

"He repeated that two more hikes are a good guess, and that the economy will suffer a period of tight credit conditions, below-average growth, and higher unemployment to return to lower inflation."

For the week, the S&P 500 lost 1.4 per cent, the Dow shed 1.7 per cent and the Nasdaq declined 1.4 per cent. Year-to-date, however, the indices are still up, gaining 13.3 per cent, 1.8 per cent and 28.9 per cent, respectively.

In Europe, London's FTSE 100 dropped 0.5 per cent at the close of trading, following Thursday's decision by the Bank of England to hike interest rates by 0.5 percentage points to 5 per cent in an effort to fight off high inflation.

That was the 13th consecutive time the central bank's Monetary Policy Committee voted to raise rates, which are now at their highest level in 15 years. It was also the sharpest increase since February and double the figure that many economists had been expecting.

BoE governor Andrew Bailey, who said inflation is still a challenge amid a British economy "doing better than expected", acknowledged that the central bank's move would be a blow to homeowners.

In other major European bourses, Frankfurt's DAX settled 1 per cent lower, while Paris' CAC 40 closed down 0.6 per cent.

Earlier in Asia, Tokyo's Nikkei 225 slid 1.5 per cent, while Hong Kong's Hang Seng index slipped 1.7 per cent, extending a tepid trading week in the continent. The Shanghai Composite was closed for a holiday.

In commodities, oil prices settled lower on Friday and posted steep weekly losses as prospects of further monetary tightening triggered concerns about economic growth and crude demand.

Brent declined 0.39 per cent to close at $85 a barrel, while West Texas Intermediate slid 0.50 per cent to settle at $69.16 a barrel. For the week, both benchmarks shed more than 3.5 per cent.

Gold, meanwhile, rose 0.3 per cent, or $5.90, to close the week at $1,929.60 an ounce. It gained as much as 1.2 per cent on Friday.

Still, the precious metal was weighed by a stronger dollar, which increased to a one-week high against its peers, and the hawkish words from Fed officials.