February 4, 2023

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Global stocks fall as interest rate hike fears collide with growth fears

Global stocks fall as interest rate hike fears collide with growth fears

Global stocks were hit by a new selling shock on Monday as central banks quickly rein in crisis-era stimulus measures and investors fear signs of a slowdown in the world’s major economies.

Wall Street’s blue-chip S&P 500 plunged 1.5 percent in early trade, and the tech-focused Nasdaq Composite Index fell 1.8 percent, with negative market sentiment dealing the biggest blows to more speculative assets, such as technology stocks and cryptocurrencies.

Europe’s regional Stoxx 600 Index is down 1.9 percent, Bitcoin touches its lowest level since last July, and the S&P 500-listed tech stock index is down 1.4 percent.

Monday’s decline comes as investors grapple with higher interest rates from the US Federal Reserve, hyperinflation, and signs of stress in the global economy.

“It is hard to say whether everything is low enough and low enough,” said Joost van Linders, equity analyst at Kempen Capital Management, adding that investors no longer expect the US Federal Reserve to prioritize the stability of financial markets, as I did During the onset of the coronavirus pandemic.

“With [bond] Higher yields and lower stock markets, tightening financial conditions, which is what the Fed wants.”

The Federal Reserve last week raised its key interest rate by 0.5 percentage point, indicating that more big increases are on the horizon as it tries to cool severe inflation caused by supply chain issues linked to the pandemic, as well as Rising food and energy costs.

“No one knows for sure whether this will be enough to suppress inflation in the future,” said Nicholas Colas, co-founder of DataTrek Research. “This is where all the recent market volatility comes in.” Economists expect data released on Wednesday to show that US consumer prices jumped 8.1 percent in April from the same month last year.

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Persistent inflation causes government bond prices to fall dramatically, which in turn increases income returns, which reduces investors’ appetite for riskier assets and increases corporate borrowing costs.

The yield on the 10-year US Treasury rose above 3.2 percent on Monday before settling back to 3.14 percent, still close to its highest level since late 2018.

The US 10-year real yield, which provides a quick glimpse into the long-term returns investors can reap after inflation in ultra-low-risk securities, jumped 0.09 percentage point Monday to 0.35 percent, after starting the year at about minus 1 per cent. dollar. cent.

Concerns about higher rates have been exacerbated by indications that growth in major global economies could slow. China’s export growth fell last month to its lowest level in two years, according to data It was released on Monday following reports last week of a slowdown in Germany and France manufacturing sectors.

The MSCI All-World measure of global stocks is down about 15 percent this year. On Friday, US stock markets are closed Longest victories of weekly losses in more than a decade.

Meanwhile, a measure of the cost of default protection on European corporate bonds rose on Monday to its highest level since 2020. The iTraxx Europe Index, which tracks a basket of credit default swaps and is a barometer of investor sentiment towards risk in Europe. Markets, it reached 100 basis points, up from 49 basis points at the beginning of the year.

iTraxx Europe line chart (spread, base points) shows a rise in investor concerns about the European corporate bond market

In commodities, international oil benchmark Brent crude fell more than 2 percent to less than $110 a barrel, indicating concerns about weak demand.

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