Global stocks fell sharply and the US dollar and government bonds rose as new restrictions in China, fears of aggressive interest rate hikes and a slowdown in economic growth prompted investors to seek security.
The declines followed a sharp fall on Friday, triggered by weak economic data and hawks from the Fed to raise interest rates next month.
London’s FTSE 100, France’s CAC 40 and Germany’s Xetra Dax were hit by declines. The European Stoxx 600 fell 2.1% in morning trading, putting the regional indicator on track for its worst daily decline since early March as traders celebrated a decisive election victory for French President Emmanuel Macron.
Futures trading predicted that the Wall Street S&P 500 stock index would fall another 0.9% at the start of trading in New York. Brent oil, the benchmark oil, fell 4.3 percent to $ 102 a barrel.
“As in previous times, when markets burst, many headwinds are gathering,” said Neil Birel, chief investment officer at Premier Miton Investors, “although the situation in China seems like a big catalyst today.”
“It’s hard to find good news everywhere and I can find good reasons to be negative for almost every asset class,” he added.
Mainland China’s CSI 300 index closed 4.9 percent lower as panicked buying hit Beijing, where residents were prepared for harsh social restrictions similar to those in Shanghai. The yuan fell 1% against the dollar. Japan’s Nikkei 225 index fell 1.9 percent.
“The week begins with a strong negative tone in global markets,” ING strategists said in a note to customers, citing tightening central bank monetary policy, “moving” Russia and Ukraine away from a diplomatic solution and “the Covid crisis in China.”
Last week, Fed Chairman Jay Powell said raising the interest rate by 0.5 percentage points was “on the table” in a bid to fight rising inflation.
Citi’s global markets strategist Matt King also cited the Fed’s plan to shrink its $ 9 billion balance sheet, which swelled during the Covid crisis as the US Federal Reserve made unlimited bond purchases to inject liquidity into the financial system, as a reason for “a sudden weaker change in the markets.”
King added: “Unfortunately, it is difficult to say whether this immediate drain of liquidity is now fully calculated.
The dollar index, which measures the US currency against six others, including the euro and the yen, rose 0.4% to its highest point since the end of March 2020. The euro fell 0.6% against the dollar to 1, 07 dollars. Sterling lost 0.9% to $ 1.27.
Despite rising inflation and expectations of rising interest rates, there were heavy purchases of US bonds on Monday as traders bought low-risk assets in anticipation of an economic slowdown.
The yield on reference 10-year government securities fell 0.08 percentage points to 2.82 percent as the price of the debt instrument rose, while the policy-sensitive two-year government bond yield fell more than 0.1 percentage point to only 2.61 percent.
The Commerce Department on Thursday is expected to report that the U.S. economy grew at an annual rate of 1% in the first quarter, the weakest growth since the recession caused by the Covid blockade in 2020.
Amazon, the owner of Facebook Meta and Apple, also posted quarterly profits this week after streaming group Netflix shocked investors by announcing it was losing subscribers for the first time in a decade.
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