AFP

Global stock markets sank Thursday, propelled by rampant inflation and growing recession fears.

Frankfurt, London and Paris equities each slid about 1.5 percent, while oil prices tumbled on demand worries.

That followed losses across Asia as investors braced for more interest rate hikes, which seek to quell runaway inflation yet could derail economic activity.

Europe’s stocks also fell Wednesday as record-high eurozone inflation fuelled fears that borrowing costs are set to climb even higher, as the region faces rocketing winter energy costs due to Russia’s war on Ukraine.

The European Central Bank will announce its latest monetary policy decision next Thursday, after delivering its first rate hike in a decade in July.

– ‘Tougher times ahead’ –

“Markets remain unable to snap their recent losing streak, with investors still positioning for tougher times ahead,” said Interactive Investor analyst Richard Hunter.

“Central to current concerns are recessionary fears in the US and a beleaguered China. 

“With the world’s two largest economies under pressure, the immediate outlook is poor.”

Asian equities weakened further Thursday as traders continued to digest shrinking factory activity in powerhouse economy China.

Shanghai also dropped after news that the Chinese city of Chengdu would effectively lock down around 16 million people in a bid to contain a Covid-19 outbreak, likely dealing another blow to a stuttering economy.

Wall Street slid Wednesday as Treasury yields — a key gauge of future interest rates — rose further, as a broadly healthy report on US private jobs showed there was room for the Federal Reserve to continue tightening monetary policy.

Another top Fed official signalled the bank was determined to keep lifting borrowing costs, mirroring recent comments by the US central bank’s head Jerome Powell that there would be no let-up in the fight against inflation.

US interest rates are currently at 2.25-2.5 percent, and there is a growing expectation they will be hiked by a bumper 75 basis points for a third successive meeting later this month.

A government jobs report Friday will be closely watched by traders hoping for an idea about the next move by the bank.

The prospect of more US rate hikes continued to push the dollar higher, with 140 yen within reach for the first time since 1998.

The greenback was also at its strongest level against the pound since the height of the pandemic in 2020, with sterling buying less than $1.16.

– Key figures at around 1040 GMT –

London – FTSE 100: DOWN 1.5 percent at 7,175.82 points

Frankfurt – DAX: DOWN 1.3 percent at 12,673.46

Paris – CAC 40: DOWN 1.5 percent at 6,032.09

EURO STOXX 50: DOWN 1.4 percent at 3,467.88

Tokyo – Nikkei 225: DOWN 1.5 percent at 27,661.47 (close)

Hong Kong – Hang Seng Index: DOWN 1.8 percent at 19,597.31 (close)

Shanghai – Composite: DOWN 0.5 percent at 3,184.98 (close)

New York – Dow: DOWN 0.9 percent at 31,510.43 (close)

Euro/dollar: DOWN at $1.0011 from $1.0054 on Wednesday

Pound/dollar: DOWN at $1.1564 from $1.1622

Euro/pound: UP at 86.56 pence from 86.50 pence

Dollar/yen: UP at 139.34 yen from 138.96 yen

West Texas Intermediate: DOWN 2.1 percent at $87.64 per barrel

Brent North Sea crude: DOWN 2.5 percent at $93.22

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Volkswagen on Thursday hands over the reins to new CEO Oliver Blume, tasked with steering the German automotive giant through challenging economic conditions after four turbulent years under his predecessor, Herbert Diess.

Blume, nurtured in house at Volkswagen and the current CEO of premium sports brand Porsche, is unlikely to signal a significant departure from the electric strategy laid out by his predecessor.

The board under “Herbert Diess has done a good job strategically and technologically,” Blume said at a conference Thursday. “We will keep up the current pace and where possible, increase it.”

The success of a business is “always the product of a strong team”, said Blume, who will head up a trimmed nine-person board.

Diess owed his exit in part to tensions with workers’ representatives, riled by his uncompromising leadership style.

As such, Blume takes the wheel at a “really difficult time” for Volkswagen, said Matthias Schmidt, an analyst specialising in electric cars.

Russia’s invasion of Ukraine has not only compounded supply chain problems unleashed by the coronavirus pandemic, but introduced uncertainties over energy supplies across Europe.

The economic turmoil comes as Volkswagen is ploughing tens of billions into an ambitious switch to electric vehicles, opening a clutch of battery factories across Europe.

Meanwhile, the new boss will also be tasked with sorting out persistent setbacks at the group’s software arm and guiding premium brand Porsche to a tricky stock market entry. 

– Electric strategy –

Diess took over at Volkswagen in 2018 with a mandate to turn the page on the “dieselgate” emissions-cheating scandal.

The Austrian’s response was to launch Volkswagen on a headlong drive into electric vehicles, but his often combative style ruffled feathers at the legacy auto manufacturer.

The 63-year-old finally lost the confidence of Volkswagen’s main shareholders — the Porsche-Piech family — as problems mounted in the group’s software division, headed by the CEO himself.

His successor, Blume, a 28-year Volkswagen veteran, is set to cut a more conciliatory figure than Diess, hired as an outsider from rival BMW.

“Blume is not known as someone who wages wars. He takes less risk than Diess,” Ferdinand Dudenhoeffer, head of the Center of Automotive Research, told AFP.

Following Diess’s exit, Volkswagen’s chief financial officer, Arno Antlitz, was sent out to stress that there would be “continuity” at the manufacturer.

But Blume has signalled that he could be more open to extending the life of old combustion engines with alternative fuels. 

In a recent interview with weekly Automobilwoche, Blume said he saw synthetic fuels as a “sensible complement of electric mobility”.

In theory, such “e-fuels”, made from carbon dioxide using renewable electricity, allow traditional engines to be run with almost no net carbon emissions. 

While Diess remained unconvinced by the alternative to petrol and diesel, synthetic fuels would allow Volkswagen to keep working on a future for combustion engines. 

Blume was unlikely to perform a full U-turn on the electrification plan laid out by Diess, Dudenhoeffer said. 

But the carmaker could “move a little further away from the purely electric strategy” given the risks of an abrupt move to battery-powered vehicles, he said.

– Legacies –

In the end, the issue is likely to be decided in Brussels, where lawmakers have backed a ban on new non-electric vehicles from 2035.

Blume may also chart a different course in the area of software. Where Diess led an ambitious drive to bring development almost completely in-house, Blume could be open to using more external suppliers.

“It’s a massive profit centre, that’s the reason they want to keep it all in-house,” said Schmidt, but the analyst pointed out that “you need software people to run a software company, not car people”.

Meanwhile, Blume was likely to support Volkswagen’s renewed emphasis on the American market, following years of struggles in the wake of dieselgate.

The move would mesh with a decision for Volkswagen to invest massively in developing and making its own batteries, thereby reducing its reliance on suppliers in China. 

“That could be Diess’s legacy in a way, that and getting the electrification post-dieselgate in motion, those are probably the two biggest legacies to leave behind,” said Schmidt.

President Joao Lourenco faces Herculean tasks of fixing Angola’s economy and winning over its disillusioned youth as he enters his second term with decimated support, analysts say.

Lourenco’s Movement for the Liberation of Angola (MPLA), which has been in power for nearly half century, won 51.17 percent of the vote in the August 24 elections for the National Assembly.

The leader of the winning party automatically ascends to the presidency, which means Lourenco has earned a second spell at the helm.

But it was also the MPLA’s poorest showing since the first democratic vote in the former Portuguese colony in 1992. In 2017, it picked up 61 percent of the ballot.

The falloff will hike pressure on Lourenco to deliver on touted economic reforms and will reinvigorate the opposition, Augusto Santana of the non-profit Democracy Works Foundation predicted.

He could face possible street protests and dissent from within the MPLA, Santana told AFP by phone from Luanda, the capital.

“He faces quite a lot of challenges,” he said.

Lourenco, 68, came to power in 2017 when he took over from long-time ruler Jose Eduardo dos Santos, who bequeathed a country deep in recession and riddled by corruption and nepotism.

The former general embarked on an ambitious reform programme to tackle graft, attract foreign investors and diversify the oil-dependent economy. 

– ‘No quick fix’ –

The country eventually emerged from a five-year slump in 2021, but reforms have not translated into better living conditions for most Angolans.

Analyst Justin Pearce said that, because of the economic crisis, Lourenco’s government had so far not “been able to address the immediate demands from the poor in society”.

Now the president will be expected to deliver long-promised economic diversification away from oil.

But “there’s no quick fix,” said the Angola expert at South Africa’s Stellenbosch University.

The economic crisis, compounded by the coronavirus pandemic and a drought, has squeezed most people, pushing them into the arms of the opposition.

The leading opposition party and former rebel movement, the National Union for the Total Independence of Angola (UNITA), gained 43.95 percent of the vote, up from 26.67 percent in 2017, also winning the capital, Luanda.  

Its charismatic leader Adalberto Costa Junior, 60, has proved popular in urban areas and among youth disaffected with a ruling party many think has run out of ideas.

Turnout was low, with only about 45 percent of those registered bothering to cast their ballots. 

On Tuesday, large numbers of angry onlookers heckled a motorcade of MPLA supporters celebrating the victory in Luanda — something unthinkable only a few years ago, Santana said. 

“There will be more protests, because this time people think that there’s nothing else that the MPLA can still do, that the MPLA should just go and leave space for others to try,” he said.

– Dialogue or oppression? –

UNITA is contesting the vote’s outcome, alleging discrepancies in the count, but similar attempts have failed in the past. 

Still, it will have more lawmakers, which will give the opposition more leverage in parliament.

They could also make further gains in local elections set to be held within the next two years.

Lourenco struck a conciliatory tone in his inaugural address, pledging to promote “dialogue” and pay particular attention “to the expectations of young people”. 

But resources to turn things around are limited. 

Angola is Africa’s second largest crude producer, but it has to import back fuel to cover most of its needs, having developed only limited refining capacity over the past decades.

And while the war in Ukraine has pushed up oil prices it also raised food costs, partially offsetting gains from crude sales, said Pearce.

As this should be Lourenco’s last term, Santana added, he will also have to deal with growing internal opposition, as party cadres jostling to replace him are likely to become more vocal in their criticism of his leadership.

Alex Vines, of the UK-based think tank Chatham House, said all eyes were on the president.

“Will Lourenco really have heard what the electorate is saying? Will he… try and grow the economy, reduce inequality and provide more jobs?” he asked.

“Or will there be a… posture of increased oppression and defensiveness?”

Investors further unloaded equities in Asia on Thursday as they girded themselves for more interest rate hikes aimed at quelling runaway inflation, with some analysts warning that markets could retest the lows touched in June.

Data showing prices rose at a record clip in the eurozone in August reinforced fears that central banks have a long road to run before they win their battle, which has fanned warnings of a recession in the world’s leading economies.

Another drop on Wall Street came as Treasury yields — a key gauge of future interest rates — rose further as a broadly healthy report on US private jobs showed there was still plenty of wiggle room for the Fed to continue tightening monetary policy.

Meanwhile, another top Fed official signalled the bank was determined to keep lifting borrowing costs, mirroring comments by head Jerome Powell last week that there would be no let-up in the fight against inflation.

“My current view is that it will be necessary to move the Fed funds rate up to somewhat above four percent by early next year and hold it there,” said Cleveland Fed President Loretta Mester in remarks prepared ahead of an event for the Dayton Area Chamber of Commerce.

“I do not anticipate the Fed cutting the Fed funds rate target next year.”

Interest rates are currently at 2.25-2.5 percent, and there is a growing expectation they will be hiked by a bumper 75 basis points for a third successive meeting later this month.

A government jobs report Friday will be closely watched by traders hoping for an idea about the next move by the bank, which has said it will make its decision based on data.

In a further warning that policymakers had a win-at-all-costs mentality, Mester later told the audience: “Even if the economy were to go into a recession, we have to get inflation down.”

The hawkish remarks out of the Fed have dealt a hefty blow to a rally in markets from their June lows.

And some have warned that more pain could be on the way, with Frances Stacy, of Optimal Capital Advisors, telling Bloomberg Radio: “I don’t think we’ve seen the bottom for this year.”

CMC markets analyst Michael Hewson added: “When you have the likes of a typical Fed dove like Minneapolis Fed President Neel Kashkari talk about the unlikely prospect of rate cuts in 2023, it’s hard to envisage a scenario of anything other than a 75-basis-point rate hike later this month, as the Fed continues to insist that their priority is to keep going on rates until the job is done.”

The downbeat mood in New York and Europe, which is also being buffeted by a major energy crisis, spread to Asia.

Tokyo, Hong Kong, Sydney, Seoul, Mumbai, Bangkok and Taipei were all deep in the red, though Singapore, Wellington, Manila and Jakarta eked out small gains.

Shanghai gave up an early advance following news that the Chinese city of Chengdu would effectively lock down around 16 million people in a bid to contain a Covid-19 outbreak, likely dealing another blow to an already stuttering economy.

London, Paris and Frankfurt fell further in early trade.

The prospect of more US rate hikes continued to press the dollar higher against all other currencies, with the psychological 140 yen mark well within sight for the first time since 1998.

And analysts are speculating that a breach of that barrier could see the Bank of Japan intervene, though they also warned it was unlikely to make much difference owing to Tokyo’s refusal to tighten its own monetary policy despite rising prices.

“There will likely be some sort of verbal intervention as 140 approaches,” said David Lu, of NBC Financial Markets Asia.

“But an actual intervention is likely to be ineffective at this point where the dollar is rising broadly on US monetary policy prospects while there is no support for the yen from the Bank of Japan.”

The greenback was also at its strongest level against the pound since the height of the pandemic in 2020, with sterling buying less than $1.16 in afternoon Asian trade.

– Key figures at around 0810 GMT –

Tokyo – Nikkei 225: DOWN 1.5 percent at 27,661.47 (close)

Hong Kong – Hang Seng Index: DOWN 1.8 percent at 19,597.31 (close)

Shanghai – Composite: DOWN 0.5 percent at 3,184.98 (close)

London – FTSE 100: DOWN 1.0 percent at 7,212.26

Euro/dollar: DOWN at $1.0026 from $1.0054 on Wednesday

Pound/dollar: DOWN at $1.1590 from $1.1619

Euro/pound: DOWN at 86.46 pence from 86.50 pence

Dollar/yen: UP at 139.40 yen from 138.98 yen

West Texas Intermediate: DOWN 0.6 percent at $88.99 per barrel

Brent North Sea crude: DOWN 0.6 percent at $95.09 per barrel

New York – Dow: DOWN 0.9 percent at 31,510.43 (close)