Fears over rate rises and economic downturn hit markets, made worse by FedEx’s big profit warning

“Markets flashed red across the board on the last day of the trading week. Investors have become increasingly nervous about the scale and pace of interest rate hikes after the recent bout of inflation data and next week we have some serious decisions to be made by some of the most important central banks,” says Russ Mould, investment director at AJ Bell.

“On Wednesday the Federal Reserve will announce its latest interest rate decision and its new economic predictions. There is scope for this event to really upset investors so today’s retreat on European and Asian markets indicates that many people are trimming positions in case we get another big leg down.

“Pre-market indicative prices suggest the US will follow suit, with futures data pointing to a 1% decline in the Nasdaq and a 0.8% drop in the S&P when North American markets open later today.

“The Bank of England also makes its interest rate decision next week (Thursday), followed a day later by a mini-Budget from the new Government.

“To make matters worse, Alfred Kammer from the International Monetary Fund yesterday gave some stark reminders of what could happen next. He said: ‘There are risks that inflation could well stay uncomfortably high for longer than expected and become entrenched. Therefore, central banks should keep raising policy rates under most scenarios.’

“Higher rates push up the cost of borrowing for consumers and businesses, thereby potentially leading to a drop in spending. That in turn results in lower economic activity, creating an even gloomier environment for stocks and shares. If you thought the worst was over, strap yourself in as it could be a bumpy ride as we move into autumn.

“The FTSE 100 fell 0.5% to 7,249, dragged down by miners, retail, engineering and packaging companies – industries whose fortunes are heavy tied to economic activity.

FedEx

“Last night’s profit warning from FedEx won’t have helped sentiment.

“As another stock which is a classic bellwether for economic activity, the delivery group said it expected business to weaken further, which might explain why Royal Mail’s shares dived 10% this morning as investors fear it too has weak near-term prospects.”