July 4, 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
  • Lagarde comments calm eurozone debt markets

LONDON/SINGAPORE (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 a bid to curb inflation, sending investors worried about future economic growth.

The biggest US rate hike since 1994, the first Swiss move of this kind in 15 years, Britain’s fifth rate hike since December, and a move by the European Central Bank to shore up the debt-burdened south all took turns 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 fell 0.2% on Friday to face weekly losses to 5.8% and leave the index on track for its biggest weekly percentage decline in more than two years.

Overnight in Asia, the yen rose 1.8% to $134.55 per dollar in choppy trade, while MSCI’s broadest index of Asia Pacific shares was 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%.

S&P 500 futures rose 0.5% and Nasdaq 100 futures rose 1% but were well underwater during the week.

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

US 10-year Treasury yields fell nearly 10 basis points overnight but fluctuated upwards to 3.2502% during early European trade. 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.

In recent sessions, the dollar slipped from a 20-year high, but it didn’t fall much and was last up 0.3%, on course to finish the week flat against a basket of currencies.

Sterling gained 1.4% on Thursday after rising 25 basis points and keeping gains until Friday as it heads for a flat week. Two-year Treasuries were last at 2.066%.

“If the central bank doesn’t move aggressively, the returns and the price risk are more in the way of rate hikes down the road,” said John Briggs, strategist at NatWest Markets.

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“Markets may continually adjust to expectations of higher rates of global policy…as the global central bank’s policy impetus is one-way.”

Growth concerns led to a brief drop in oil before prices stabilized. Brent crude futures recorded $120.55 a barrel in the latest trading. Gold fell 0.5% to $1,848 an ounce and Bitcoin rose 3.5% to $2,099.

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Editing by Lincoln Fest and Angus McSwan

Our criteria: Thomson Reuters Trust Principles.