Currency traders work at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea, Friday, Aug. 18, 2023. AP
Equity traders around the world have been spooked this month by a recent run of data suggesting that while US inflation is coming down, the economy remains robust and prices could remain sticky for some time.
That has led to a re-evaluation of the outlook for monetary policy, with optimism that July's rate hike could be the last giving way to bets on one more before the end of the year.
That view has been given legs by some decision-makers at the central bank, who have suggested its two percent inflation goal can only be achieved and maintained by pushing borrowing costs higher. Inflation currently stands at 3.2 percent.
Expectations of another Fed hike have pushed 10-year Treasury yields -- a gauge of future rates -- close to their highest levels since the global financial crisis.
Data on Thursday did little to dissuade investors, with unemployment benefit applications falling the most since last month, indicating the labour market remains in rude health.
The Fed has said softening the jobs sector was key to bringing down inflation.
"This week's data hasn't given them any reason to let their guard down," said Mike Loewengart of Morgan Stanley Global Investment Office.
"With housing starts, retail sales, and jobless claims all reinforcing the picture of a robust economy, another rate hike can't be ruled out, even if the Fed remains on hold next month."
Fed chief Jerome Powell's speech at the annual Jackson Hole economic symposium in Wyoming will be closely followed for clues about the bank's plans.
All three main indexes on Wall Street sank for a third straight session on Thursday, while London, Paris and Frankfurt also suffered heavy losses.
Asian markets were well in the red, including Hong Kong, which was down for a sixth consecutive day, while European trade started on the back foot.
Investors are also keeping an anxious eye on China, where authorities are struggling to get a grip on the economy as its recovery from Covid peters out.
The country's property crisis was also back in the headlines, with big-name and massively indebted firms in danger of going under.
On Thursday, Evergrande Group -- considered the poster child of the drama -- filed for bankruptcy protection in the United States, a measure that protects its US assets while it attempts to push through a restructuring.
That comes days after Country Garden said there were "major uncertainties in the redemption of corporate bonds", suggesting it could default on a bond payment next month.
Meanwhile, there are now concerns about property firms that are backed by the government, with Bloomberg reporting that many are warning of widespread losses.
It said 18 of the 38 state-owned enterprise builders traded in Hong Kong and China posted preliminary losses in the first half of the year, compared with 11 that warned of full-year losses in 2022.
"China's property slowdown is already hurting all developers, including the large government-linked ones," said Zerlina Zeng, of CreditSights Singapore.
"We do not expect the situation to materially improve in the second half."
- Key figures around 0715 GMT -
Tokyo - Nikkei 225: DOWN 0.6 percent at 31,450.76 (close)
Hong Kong - Hang Seng Index: DOWN 1.8 percent at 17,992.95
Shanghai - Composite: DOWN 1.0 percent at 3,131.95 (close)
London - FTSE 100: DOWN 0.4 percent at 7,281.25
Euro/dollar: DOWN at $1.0876 from $1.0878 on Thursday
Pound/dollar: DOWN at $1.2713 from $1.2745
Euro/pound: UP at 85.54 pence from 85.29 pence
Dollar/yen: DOWN at 145.30 from 145.79 yen
West Texas Intermediate: UP 0.3 percent at $80.61 per barrel
Brent North Sea crude: UP 0.1 percent at $84.20 per barrel
New York - Dow: DOWN 0.8 percent at 34,474.83 (close)