LONDON, May 9 (Reuters) – Shares fell sharply on Monday and the dollar jumped to a new two-decade high as worries about higher interest rates and a tight blockade in Shanghai deepened investors’ fears that the global economy was moving fast. fun.
After a tough session on Friday, in which US stocks sold out sharply as another rise in US long-term bonds irritated investors, markets were set for a difficult start to the week, with most indices in the red.
Central banks in the United States, Britain and Australia raised interest rates last week, and investors are preparing for more tightening as politicians try to cope with rising inflation.
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“We see that the risk of recession over the next 12 to 18 months will reach about 30%,” said Dan Ivaskin, the group’s chief investment officer at bond giant PIMCO.
“One of the key reasons for this is that the Fed and other central banks seem dead to keep inflation under control.”
There were many other things for investors to worry about on Monday, apart from tightening financial conditions.
China’s zero-COVID-19 policy does not seem to be slowing down, with Shanghai tightening its blockade across the city to 25 million people. Read more
Speculation that Russian President Vladimir Putin may declare war on Ukraine to call up reserves during his speech at Victory Day celebrations has also hurt market sentiment. So far, Putin has characterized Russia’s actions in Ukraine as a “special military operation” rather than a war. Read more
Wall Street futures fell sharply, with S&P 500 futures down 2% and Nasdaq futures down 2.5%. The S&P 500 and Nasdaq on Friday posted their fifth consecutive week of decline – their longest losing streak in a decade.
The euro STOXX weakened by 2% (.STOXX). Germany’s DAX (.GDAXI) lost 1.6% and Britain’s FTSE 100 (.FTSE) lost 1.78%.
MSCI’s Core Emerging Markets Index (.MSCIEF) fell 1.2% to its lowest level since July 2020.
The world index MSCI (.MIWD00000PUS) fell 0.7%, leaving it not far from the 17-month low during the day reached on Friday.
global stocks
MSCI’s broadest index for Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 1.4 percent and Japan’s Nikkei (.N225) fell 2.53 percent. China’s blue chips (.CSI300) fell 0.8%, while the offshore yuan fell to 6.7759 per dollar, its lowest level since October 2020.
The biggest event of the week is the US Consumer Price Report, due to be released on Wednesday, when only a slight decline in inflation is forecast and certainly nothing prevents the Federal Reserve from rising by at least 50 basis points in June.
The yield on US 10-year bonds on Monday reached a new 3-1 / 2 year high of 3.203%.
Because investors are juggling so many worries, one place to look for security is in the dollar.
The dollar index, which measures greenbacks against a basket of currencies, rose 0.4 percent to 104.19, the latest in a series of 20-year highs.
“The risk appetite is fragile and yield spreads continue to suggest a further rise in the dollar index,” said Sean Callow, senior currency strategist at Westpac.
“We are looking for continued demand for DXY (the dollar index) in the face of declines, with 104 already under investigation and still having the potential to move to 107 in a few weeks.”
The rising dollar is hitting other currencies. The euro briefly fell below $ 1.05, while the Japanese yen fell to its lowest level since 2002.
Expectations that the Fed will move more aggressively in raising interest rates support the dollar, as well as the feeling among investors that the US economy will perform better than the eurozone, affected by the effects of the war in Ukraine.
But interest rates are also rising in the eurozone. Germany’s 10-year bond yields reached a new high since 2014 on Monday, backed by hawk politician Robert Holtzman, who said on Saturday that the European Central Bank must raise interest rates three times this year to fight with inflation.
The diary is full of Fed speakers this week, giving them plenty of opportunities to sustain the hawk’s chorus.
Oil prices initially rose after the Group of Seven pledged to ban or phase out Russian oil imports over time before falling. Read more
Brent fell 2.15% to $ 109.97 at 11:15 GMT, while US crude oil fell 2.39% to $ 107.15.
Spot gold prices lost 1.24% to $ 1,859 an ounce after recently struggling to gain strength as a safe haven.
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Report by Tommy Wilkes; Additional reports from Wayne Cole in Sydney; Edited by Bradley Peret and Chizu Nomiyama
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