Stocks eye biggest drop since 2020 as central banks jitter markets

NEW YORK (Reuters) – Global stocks tumbled on Friday, approaching their worst week since the pandemic crash of markets in March 2020, as major central banks tightened policy in an attempt to tame inflation, unnerving investors about the outlook for the economy. 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, sticking to its strategy of holding 10-year bond yields near zero on Friday. Read more

After a week of strong moves across global asset classes and stocks (.MIWD00000PUS) It fell 0.7% on Friday to face weekly losses of more than 6%, leaving the index on track for its largest weekly percentage decline in more than two years.

By midday in New York, the Dow Jones Industrial Average (.DJI) It was flat, the S&P 500 (.SPX) Added 0.28% and the Nasdaq Composite Index (nineteenth) jumped 1.5%.

“The first half (of) 2022 did not go according to plan. Inflation, war and lockdowns in China have derailed the global recovery,” Bank of America economists said in a note to clients, adding that they see a 40% chance of a recession in the US cent next year as the Federal Reserve continues to raise interest rates.

“Our worst fears about the Fed have been confirmed: they have fallen far off the curve and they are now playing a dangerous game of catch-up. We are looking for GDP growth to slow to nearly zero, inflation to stabilize at around 3% and the Fed to hike rates above 4 %”.

Fears that Fed policy tightening would trigger a recession slowed rising US yields and bolstered Treasury prices. Yields decrease when prices rise. The 10-year Treasury yield fell to 3.2124% from 3.305%.

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 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 rising, while achieving a soft landing for the US economy looks increasingly difficult.”

In Asia, 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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Bonds and currencies were nervous after a volatile week.

Overnight in Asia, the yen fell after the Bank of Japan bucked the wave of policy tightening and stuck to its highly accretive policy stance. The yen fell 2.2% late in the morning in New York, and the yen’s decline supported the US dollar, which rose 0.9% against a basket of major currencies.

Sterling fell 1.2% on Friday in New York as investors focused on the gap between US and UK interest rates, helped by the Federal Reserve’s current aggressive stance, while the Bank of England opts for a more moderate approach.

“If the central bank doesn’t move aggressively, yields and risk-taking are on the way to raising rates,” said John Briggs, strategist at NatWest Markets.

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

Growth concerns caused oil prices to rise. And US crude recently fell 6.56% to $ 109.88 a barrel, and Brent crude recorded $ 113.18, down 5.53% on the day.

Gold fell 0.9% to $1,839.99 an ounce, weighed down by a stronger dollar.

Editing by Lincoln Fest, Angus McSwan and David Evans

Our criteria: Thomson Reuters Trust Principles.