Shares in Europe and Asia fell on Friday following unexpectedly robust reports on the US economy, sparking fears of persistently high interest rates.
US futures saw a slight increase, while oil prices took a tumble. In early trading across Europe, Germany's DAX fell by 0.6% to 18,638.00, France's CAC 40 dropped 0.4% to 8,071.23, and Britain's FTSE 100 declined by 0.5% to 8,301.27.
The futures for the S&P 500 and the Dow Jones Industrial Average both rose by a marginal 0.1%. Japan's Nikkei 225 index fell by 1.2% to 38,646.11 after government data showed that core inflation, excluding fluctuating food and energy prices, was at 2.2% in April, lower than predicted. Analysts suggested this could ease pressure on the Bank of Japan to hike interest rates.
"In fact, in seasonally-adjusted terms, consumer prices excluding fresh food and energy have now held steady for two consecutive months. That means that it won't take long before inflation excluding fresh food and energy falls below the Bank of Japan's 2% target," commented Marcel Thieliant of Capital Economics.
He added that it was unlikely the central bank would be able to raise its key rate any further, especially after it increased it to a range of zero to 0.1% from minus 0.1% in March.
In Hong Kong, the Hang Seng dropped 1.5% to 18,590.33, while the Shanghai Composite index fell 0.9% to 3,088.87. A surge in property shares following the announcement of new measures to bolster the struggling industry has been short-lived, as market participants question if it will be enough to end the ongoing crisis in the housing sector.
Shares in China Vanke, a leading developer, fell by 6%, as did Hong Kong-traded shares in Shimao Group Holdings, another large property firm. Agile Group Holdings plummeted by 8%. South Korea's Kospi index dropped 1.3% to 2,687.60, while in Australia, the S&P/ASX 200 lost 1.1% to 7,727.60.
Taiwan's Taiex index dipped 0.2% after reaching a record high on Thursday. On Thursday, most US stocks took a hit when robust economic reports sparked worries that the Federal Reserve might maintain high interest rates to keep inflation in check.
The weakness was widespread and overshadowed another impressive profit report from market heavyweight Nvidia. The S&P 500 experienced its sharpest drop since April, falling 0.7%. The Dow Jones Industrial Average dropped 1.5% and the Nasdaq composite slipped 0.4%.
One report suggested that growth in US business activity is at its fastest pace in over two years. S&P Global stated its preliminary data showed growth improved for businesses not only in the services sector but also in manufacturing. Another report indicated that the US job market remains strong despite high interest rates. Fewer workers applied for unemployment benefits last week than economists predicted, suggesting that layoffs remain low.
The Fed is grappling with the challenging task of slowing down the economy through high rates to bring inflation back to 2%, without triggering a harsh recession. To achieve this, it's been maintaining its main interest rate at the highest level in over two decades, leaving Wall Street eager for some relief.
Live Nation Entertainment saw the steepest single drop within the S&P 500, plummeting 7.8% after the Justice Department accused it and its Ticketmaster business of operating an illegal monopoly over live events in the country.
In other trading news from early Friday, US benchmark crude oil dipped 19 cents to $76.68 per barrel in electronic trading on the New York Mercantile Exchange, following a gain of 30 cents on Thursday. Brent crude, the international standard, dropped 15 cents to $81.21 per barrel.
The US dollar increased to 157.04 Japanese yen from 156.96, while the euro rose to $1.0824 from $1.0817.