July 7, 2022

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Stocks eye biggest drop since 2020 as central banks jitter markets

Stocks eye biggest drop since 2020 as central banks jitter markets
  • The Bank of Japan was isolated as central banks raised interest rates
  • Investors fear a recession growing
  • US stocks poised for recovery; The S&P 500 Index is up 0.9%.

LONDON (Reuters) – Global stocks are headed for their worst week since the pandemic crash of markets in March 2020 as major central banks doubled their hawkish policies in an attempt to tame inflation, raising investors’ concerns about future economic growth.

The biggest US rate hike since 1994, the first Swiss move of this kind in 15 years, the fifth UK rate hike since December, and a move by the European Central Bank to prop up the indebted south ahead of future hikes all took roles in troubled markets. .

The Bank of Japan was the only central bank in the week that money prices rose around the world, and stuck to its strategy of holding 10-year yields near zero on Friday. Read more

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After a week of strong moves across global asset classes and stocks (.MIWD00000PUS) It was flat on Friday to take weekly losses to 5.5% and leave the index on track for its biggest weekly percentage decline in more than two years.

Overnight in Asia, the dollar rose 1.9% against the yen to 134.70 in choppy trade, while MSCI’s broadest index of Asia Pacific shares outside Japan (.MIAPJ0000PUS.) It fell to a five-week low, weighed down by the sell-off in Australia. Japan’s Nikkei Index (.N225) It fell 1.8% and headed for a weekly decline of about 7%.

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S&P 500 futures rose 0.8% and Nasdaq 100 futures rose 1.2%, although both remained well underwater during the week.

Mark Heffel, chief investment officer at UBS Global Wealth Management, said: “A more aggressive streak by central banks is adding to the headwinds for both economic growth and equities. Recession risks are on the rise, with a smooth landing for the US economy appears to be an increasing challenge.” .

Data from analysts at Bank of America showed that more than 88% of the stock indices he tracks are trading below the 50-day and 200-day moving averages, leading to a “painfully oversold” in the markets.

One-way

Bonds and currencies were nervous after a volatile week.

US employment and housing data came in weak on Thursday, following disappointing retail sales figures, with anxiety hitting the dollar and helping Treasuries. Read more

The benchmark 10-year US Treasury yield fell about 10 basis points overnight but was last at 3.2000%. Yields rise when prices fall.

Bond yields in southern Europe fell sharply on Friday, after reports of more details from European Central Bank President Christine Lagarde about her plans to develop a yield support tool.

The yield on Germany’s 10-year bond, the benchmark for the euro zone, was 1.66% last.

In recent sessions, the dollar pulled back from a 20-year high, but it did not fall much and was last up 0.5%, on track to end the week flat against a basket of currencies.

Sterling gained 1.4% on Thursday after a 25 basis point rate hike and was last down 0.5% as the week approaches stability. Two-year Treasuries were last at 2.091%.

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“Despite what appears to be calm today in the markets, investors will need to move from a soft strategy to a hard landing strategy which means they will have to either switch to defensive or eliminate risk entirely,” Stephen Innes, managing partner at SPI Asset Management, said. .

Growth concerns led to a brief drop in oil before prices stabilized. Brent crude futures were at $120.40 a barrel in the latest trading. Gold extended its losses on the day, dropping 0.6% at $1,848 an ounce while Bitcoin rose 2.8% to $20943.

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Additional reporting by Tom Westbrook. Editing by Lincoln Fest, Angus McSwan and Andrew Heavens

Our criteria: Thomson Reuters Trust Principles.