Global markets fall sharply on worries about rates, economy

Stocks around the world fell on Friday on more signs the global economy is slowing, while central banks are increasing the pressure with additional rate hikes.

The S&P 500 fell 1.7% after a preliminary report suggested US business activity was still contracting, albeit not quite as sharply as in previous months.

European stocks fell even more after preliminary data there indicated their worst monthly decline since early 2021.

The Federal Reserve and other central banks around the world aggressively hiked interest rates this week in hopes of undercutting high inflation weighing on the global economy. But such moves also slow their economies and threaten recessions as global growth slows.

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Crude oil prices fell on concerns that a weaker global economy would burn less fuel. Cryptocurrency prices also fell sharply, as higher interest rates tend to hit investments that look the most expensive or risky the hardest. Even gold fell in the global slide as higher-yielding bonds make non-interest-paying investments less attractive.

The S&P 500 is on track for its fifth week of losses in the last six. The Dow Jones Industrial Average fell 403 points, or 1.3%, to 29,668 and the Nasdaq fell 2%. US crude prices fell 5.6%.

The Federal Reserve on Wednesday raised interest rates, which affect many consumer and business loans, to a range of 3% to 3.25%. It released a forecast showing the key interest rate to end the year at 4.4%, a full point higher than forecast in June.

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Government bond yields, which affect interest rates on mortgages and other types of credit, have risen to multi-year highs as interest rates rise.

The 2-year Treasury yield, which tends to follow expectations for Federal Reserve action, rose to 4.17% from 4.12% late Thursday. It is trading at its highest level since 2007. The 10-year Treasury yield, which drives mortgage rates, rose to 3.72% from 3.71%.

Central banks in Britain, Switzerland, Turkey and the Philippines all hiked interest rates after the Fed raised interest rates for the fifth time this year and announced more hikes on Wednesday.

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The UK’s new government on Friday announced a sweeping plan of tax cuts that it said would be funded by borrowing and revenue from expected growth, taking the pound below $1.12 for the first time since 1985 and the UK government bond yields rose sharply.

Economists have expressed concerns the government’s policies will lead to a sharp rise in borrowing and undermine confidence in the UK economy.

Business journalists Joe McDonald and Matt Ott contributed to this report.

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