US stock markets fell yesterday after Federal Reserve chair Jerome Powell warned inflation is “still too high” despite a recent slowdown, leaving the door open for another interest rate hike if needed.

On Wall Street, the Dow Jones Industrial Average lost 0.8%, while the broad-based S&P 500 Index slipped 0.9%, and the tech-heavy Nasdaq Composite Index slumped 1.0%.

“Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell told a conference in New York.

Additional evidence of “persistently above-trend growth” or fresh signs of tightness in the labor market “could warrant further tightening of monetary policy,” he said. 

Investors around the world were also contending with rising US Treasury yields and the concerns that the Israel-Hamas war could spiral into a wider conflict in the oil-rich Middle East.

Europe’s main stock markets extended losses following heavy falls earlier in Asia, while oil prices ticked higher. 

“The current risk appetite remains conservative at best, due to the prevailing economic uncertainties and heightened geopolitical risks emitting from the Middle East,” said Fawad Razaqzada, analyst at City Index and forex.com.

Treasury yield continues ascent

The yield on the 10-year US Treasury note, seen as a proxy for US interest rates, rose above 5% for the first time since 2007.

A reason for the climb, said Peter Cardillo of Spartan Capital, is that the market feels “Fed rates will stay high for an extended period of time.”

“The surge in US 10-year Treasury yields, perhaps a delayed reaction from robust US retail sales data earlier, has taken the forefront in global financial markets,” Razaqzada said.

Weekly jobless claims data meanwhile came in lower than expected Thursday, suggesting that the labor market is tighter than many predicted.

“The key takeaway from the report is the remarkably low level of initial jobless claims – a leading indicator – which conveys a tight labour market that is a good portent for continued strength in consumer spending,” Patrick O’Hare from Briefing.com wrote in a note before markets opened.

Among individual companies, shares in electric vehicle maker Tesla dropped 9.3% one day after its results missed analyst estimates.

But streaming giant Netflix’s shares surged more than 16% after it reported that its subscriber numbers grew nearly 11% to 247 million in the recently ended quarter, in part due to a crackdown on password sharing.

Key figures around 2100 GMT

New York - Dow: DOWN 0.8% at 33,414.17 points (close)

New York - S&P 500: DOWN 0.9% at 4,278.00 (close)

New York - Nasdaq Composite: DOWN 1.0% at 13,186.18 (close)

London - FTSE 100: DOWN 1.2% at 7,499.53 (close) 

Frankfurt - DAX: DOWN 0.3% at 15,045.23 (close)

Paris - CAC 40: DOWN 0.6% at 6,921.37 (close)

EURO STOXX 50: DOWN 0.4% at 4,090.33 (close)

Tokyo - Nikkei 225: DOWN 1.9% at 31,430.62 (close)

Hong Kong - Hang Seng Index: DOWN 2.5% at 17,295.89 (close)

Shanghai - Composite: DOWN 1.7% at 3,005.39 (close)

Euro/dollar: UP at US$1.0583 from US$1.0536 on Wednesday

Pound/dollar: UP at US$1.2142 from US$1.2140

Dollar/yen: DOWN at  ¥149.81 from  ¥149.93

Euro/pound: UP at 87.14 pence from 86.78 pence

Brent North Sea crude: UP 1.0% at US$92.38 per barrel

West Texas Intermediate: UP 1.2% at US$89.37 per barrel – AFP, October 20, 2023.