Global stocks fall after warning of continued rise in interest rates

Global stocks fell and Treasury yields rose on Monday after central bankers warned investors to be prepared for a prolonged period of higher interest rates.

Policymakers from the US Federal Reserve and the European Central Bank used speeches at last week’s annual meeting in Jackson Hole, Wyoming, to underscore their commitment to fighting inflation, despite the risk of pushing the economy into recession.

Wall Street’s benchmark S&P 500 stock index fell 0.7 percent on Monday, extending losses after a… Steep decline When Federal Reserve Chairman Jay Powell spoke last Friday. The technology-dominated Nasdaq Composite Index is down 1 percent.

US Treasury prices, which were quieter in the immediate aftermath of Powell’s speech, fell sharply on Monday. The yield on the two-year note, which is particularly sensitive to expectations of short-term interest rates, came in at 3.48 percent — its highest level since 2007 — before easing back to 3.43 percent, a 0.03 percentage point increase from today. Bond yields rise when prices fall.

The benchmark 10-year Treasury yield rose 0.07 percentage point to 3.11 percent.

Impact of Powell’s hawkish speech, in which he warned that the Fed “You have to keep doing that until the job is doneAlso reflected in the Vix Volatility Index, a measure of expected swings in US stocks that is commonly referred to as Wall Street’s ‘fear gauge’. The Vix Index rose to 27.7, its highest level since mid-July.

“Officials remain strongly committed to bringing inflation back to the central bank’s 2 per cent target,” said Mansoor Mohieldin, chief economist at the Bank of Singapore. “We believe the chances of a 0.75 percentage point move next month have increased and we will be watching US payrolls and August consumer inflation data closely.”

Several top European policy makers have also warned that monetary policy should remain tight in the Eurozone for an extended period.

Major stock indexes on the continent have fallen but have recovered somewhat from their early lows. The benchmark Euro Stoxx 600 was 0.8 percent weaker. Germany’s DAX fell 0.6 percent, and the CAC 40 in Paris fell 0.8 percent. London is closed for a public holiday.

Japan’s benchmark Topix index led markets lower in Asia with a 1.8 percent decline. The Hang Seng Index fell 0.7 percent.

Italian 10-year bond yields rose 0.12 percentage point to 3.79 per cent, approaching the 4 per cent threshold that many see as the point at which its debt begins to appear unsustainable.

The Japanese yen fell 0.8 percent to 138.70 yen per dollar. Sterling fell 0.4 percent to $1.17, hitting its lowest level against the dollar since the early days of the coronavirus pandemic, after Goldman Sachs cut its forecast for UK economic growth to 3.5 percent, from 3.7 percent previously.

Additional reporting by Martin Arnold in Frankfurt