A heavy sell-off rolled across the stock markets on Friday. Higher-than-expected US inflation has fueled fears of aggressive rate hikes and a recession.
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Fears are growing that the US central bank (Fed) will raise interest rates even more aggressively than expected to keep inflation under control. There is speculation that the Fed will raise interest rates by 50 basis points not only in June and July, but also in September. This led to a sharp rise in long-term interest rates in both the US and Europe.
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The European Central Bank (ECB) is also planning interest rate hikes. It announced a 0.25 percentage point rate hike for July on Thursday and opened the door for a bigger rate hike in September.
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recession
The prospect of much higher central bank policy rates is fueling fears of a recession. This brings the image of stagflation, the combination of high inflation and low or negative economic growth, back to the forefront among investors.
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“The more interest rate expectations rise, the more toxic they become to equity markets,” said Thomas Altmann, advisor at asset manager QC Partners. There is a real danger that central banks will bring the economy to a standstill. That danger is increasingly being priced in on the stock markets.’
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