European stock markets had their worst day in nine months as a wave of selling that began with fading hopes of a rapid cut in US interest rates spread across the globe.
Indices in Europe and Asia fell sharply, following steep falls on Wall Street on Monday after strong US retail sales figures showed the Federal Reserve may cut interest rates less this year than previously thought.
Across the region, the Stoxx Europe 600 fell 1.5 per cent, its biggest one-day drop since July last year. Energy groups, banks and miners represented in the commodity-heavy index led the declines in Europe, while London’s FTSE 100 fell 1.8 per cent, its worst day in nine months.
Wall Street’s benchmark S&P 500 index closed down 0.2 per cent, while the technology-heavy Nasdaq Composite fell 0.1 per cent after steeper falls in the previous session. On Friday and Monday, the S&P 500 recorded its worst two-day losing streak since the regional banking crisis in March 2002.
Hong Kong’s Hang Seng, South Korea’s Kospi and Japan’s Topix all lost more than 2%, while China’s CSI 300 fell 1.1%.
Emerging market currencies also weakened against the dollar on expectations of fewer US rate cuts, prompting intervention by Asian central banks such as Indonesia and South Korea.
As changing interest rate expectations hit currency markets, the Indonesian rupiah fell 2 per cent against the dollar to 16,176 rupiah, its lowest level in four years.
Bank Indonesia Governor Perry Warjiyo said on Tuesday that the central bank had stepped in to support the rupiah, which has fallen about 5 per cent this year and is one of Asia’s worst-performing currencies.
The Indian rupee also fell 0.2 per cent against the dollar to a record low of 83.64 rupees, while the Malaysian ringgit traded near a 26-year low, down 0.3 per cent, a day after the country’s central bank said it would “manage risks from increased financial market volatility”.
The Korean won also fell 0.9 per cent to a 17-month low, and the finance ministry and the Bank of Korea said in a joint statement on Tuesday that they were ‘closely monitoring foreign exchange movements and supply and demand with special attention’.
