Investors are now getting nervous that central banks will raise interest rates in an effort to keep inflation at bay. If they move too quickly, their efforts could temper that global growth.
It is making for a jittery market.
After being lulled into a sense of complacency by years of steadily rising stocks, even small worries can snowball into a really bad day for stocks. The losses can feed on themselves in a market dominated by computerized trading systems, with the weakness in the United States spreading around the world.
“Asia is going to be the tail that gets wagged by the U.S. dog,” Timothy Moe, chief Asia Pacific strategist at Goldman Sachs, said on Friday.
Like the United States, Chinese shares have surged in recent months, on the back of a strong economy. An improved global outlook has led to more purchases of Chinese exports. The authorities also seem to have slowed what had been an alarming borrowing binge.
But the Chinese market is not without reasons to worry. Investors kept a careful eye this week on China’s currency, the renminbi. The currency, which is carefully managed by the Chinese government, took a hit on Thursday and fell as much as 1.2 percent before strengthening a bit on Friday.
Before that, the currency had been rising steadily against the American dollar, leading to worries that Beijing could step in further to contain it. World markets can be sensitive to sharp swings in the renminbi.
Friday’s tough day of trading put Chinese shares by some measures into correction territory. “We are witnessing the longest rally in the history of Chinese stocks,” analysts at Goldman Sachs wrote to clients early this week, adding, “A tactical correction appears overdue, and markets could fall further.”
Shares in Shanghai fell about 4 percent on Friday, while Hong Kong shares lost 3.1 percent. Shares in Tokyo fell 2.3 percent. In Europe, stocks wavered, off more than 1 percent in afternoon trading.
In the logic of stock markets, bad news can sometimes be good news. The recent gains in the value of the euro against the dollar and other major currencies were expected to slow exports and potentially put the brakes on the eurozone economy.
Slower growth would, in turn, dissuade the European Central Bank from raising interest rates too soon, prolonging the cheap money that has been partly responsible for the bull market.
“The E.C.B. has, in fact, a vital interest in keeping euro area interest rates at low levels,” Ralph Solveen, an analyst at Commerzbank, said in a note to clients on Friday.
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