Markets jolted as Fed signals another rate hike next month

US stocks fell, with shares of technology, energy and industrial companies bearing the brunt of a selloff, as weak Chinese data and declines in oil prices raised concerns about global growth.

As investors shunned growth stocks, the S&P technology index fell 1.6 per cent, led by losses in Apple and chipmaker Skyworks Solutions, which fell 8.8 per cent after weak forecast. The S&P energy index shed 1.8 per cent as US crude price entered “bear market” territory.

“A lot of investors look at oil prices as the general indicator of the global economy, so it being weak is not a good sign,” said Scott Brown, chief economist at Raymond James in St Petersburg, Florida. Oil majors Exxon Mobil and Chevron fell more than 1 per cent, while a drop in price of copper, considered an economic bellwether, led to a 4.4 per cent loss in miner Freeport McMoran.

David Madden, analyst at CMC Markets, told that “rising US stockpiles, rising US production — which is now at a record-high — and talk of Iraq and Indonesia raising output next year are all factors as to why oil is lower. Ongoing concerns about China slowing down is a factor too.” Madden added that the “price needs to strike a balance, of being cheap enough to keep demand strong, and keep [US President Donald] Trump happy, but not so low that their oil revenue drops drastically.”

Amid a bitter trade dispute between the Washington and Beijing, Chinese data showed producer inflation fell for the fourth straight month in October on cooling domestic demand and manufacturing activity.

“The sense that the Fed is well on track to continue tightening policy de-railed the post mid-term relief rally in the markets,” said Vishnu Varathan of Mizuho Bank in a report. The Fed cited a stronger job market and omitted mention of tighter financial conditions, “lowering the bar” for a December rate hike, said Varathan.

MSCI’s gauge of stocks across the globe fell half-a-per cent, its biggest drop since October 26, as the Fed indicated that another rate increase is likely in December.

Rick Rieder, co-manager of the BlackRock fixed income global opportunities fund, said likely greater tightening in financial conditions could start affecting other sectors of the US economy such as autos and small businesses.

Amid a bitter trade dispute between the Washington and Beijing, Chinese data showed producer inflation fell for the fourth straight month in October on cooling domestic demand and manufacturing activity. The China report sent Asian stocks into a tailspin, while tradesensitive stocks such as Boeing and Caterpillar fell over 1 per cent.

“Worries about trade war and how the slowdown in China will impact the rest of the world mean stocks appear to be more risky, so there’s a typical risk-off move in markets today,” said DZ Bank rates strategist Pascal Segesser.

Data on Friday showed US producer prices rose more than expected in October and at their fastest pace in six years, fuelled by a jump in costs for energy and trade services. Prices paid by producers rose 0.6 per cent, while analysts polled by Reuters had expected producer prices to rise 0.2 per cent from September. —

[Oil’s] price needs to strike a balance, of being cheap enough to keep demand strong, and keep Trump happy, but not so low that their oil revenue drops drastically

David Madden, analyst at CMC Markets