Global stocks fall amid recession fears and central bank interest rate hikes

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US and European stocks fell on Monday as the outlook for the world’s major economies darkened, with tech stocks hit hard by fears the Federal Reserve is taking a hawkish tone at this week’s central bank summit.

Wall Street’s tech-focused Nasdaq composite measure is down more than 2%, with streaming company Netflix down more than 6%.

Semiconductor giant Amazon, Tesla and Nvidia also lost around 3%, with growing fears of higher interest rates reducing the value of future cash flow and earnings.

“The Nasdaq is the epicenter of interest rate uncertainty in equity markets,” said Julian Howard, chief investment officer at GAM. “[The Fed] He talks about hawks, which makes the market very nervous. The job is not done [on inflation]. “

Wall Street’s broad S&P 500 fell 1.6% in late New York morning after a four-week winning streak on Friday.

Market volatility in the United States in recent weeks has been fueled by hedge funds closing bearish bets and traders warned on Monday that the expiry of a wide range of options on Friday could amplify volatility in days to come, as was the case initially. of the week.

In currencies, the euro fell nearly 1% against the dollar to $0.994, falling below $1 after hitting parity with the dollar in July for the first time in two decades. Worries over possible cuts in Russian energy supplies drove European gas and energy prices higher on Monday, adding to fears that the continent could slide into recession.

The regional Stoxx Europe 600 stock index closed down 1%, with the German DAX down 2.3%.

A growing sense of economic gloom precedes the Federal Reserve’s annual meeting in Jackson Hole, Wyoming, which the central bank often uses to make big policy announcements. Federal Reserve Chairman Jay Powell is expected to signal that the central bank will continue to aggressively raise interest rates while battling high inflation.

“I wouldn’t count on Powell to give a strong signal to Jackson Hole that it’s ready to turn the tide on inflation,” said Joost van Linders, chief investment analyst at Van Lanschot Kempen. “[He will] Justify why they raised prices so quickly and why they should.

Citigroup economist Andrew Hollenhurst echoed that sentiment, saying, “We continue to expect a relatively hawkish speech from President Powell in Jackson Hole on Friday.”

He noted that U.S. Treasury yields and the dollar haven’t risen lately as investors turn to anticipation of stronger policy tightening from the Fed, even after the US inflation fell slightly in July compared to June.

The policy-sensitive two-year Treasury yield traded at 3.33% on Monday, down from around 2.5% at the end of May and less than 1% at the end of last year. Meanwhile, the dollar gained 0.9% on Monday, and it is up nearly 3% this month against a basket of half a dozen major currencies, approaching a two-decade high in July.

Developed global equity markets rebounded strongly in July after a historic fall in the first half and were still high from August through Friday’s close. However, many investors have questioned the sustainability of the recent recovery given the strong economic headwinds expected for the rest of this year and into 2023.

“I’m not buying that comfortably high price. I think we will face more risky market declines for the rest of the year,” said Jamie Niven, senior fund manager at Candriam.

Elsewhere, mainland Chinese stocks rebounded on Monday after the People’s Bank of China lowered its mortgage rate for the second time this year, in a bid to prop up the indebted real estate sector. The CSI 300 index of stocks listed in Shanghai and Shenzhen rose 0.7%.

Additional reporting by Eric Platt in New York

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