September 29, 2022

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Global stocks fall amid fears of recession and central bank interest rate hike

Global stocks fall amid fears of recession and central bank interest rate hike

US and European stocks fell on Monday as the outlook for the major global economies darkened, with technology shares hit hard by fears that the Federal Reserve will adopt a hawkish tone at this week’s central bank summit.

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

Semiconductor giant Amazon, Tesla and Nvidia also lost about 3 percent, with growing concerns about rising interest rates that reduce the value of future cash flows and profits.

“The Nasdaq is the epicenter of interest rate uncertainty in the 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 finished [on inflation]. “

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

Market volatility in the US in recent weeks has been driven by hedge funds shutting down bearish bets and traders warned on Monday that expiring a wide range of options on Friday could amplify volatility in the days ahead, as it did initially. of the week.

In currencies, the euro fell nearly 1 percent against the dollar to $0.994, falling below $1 after hitting parity with the dollar in July for the first time in two decades. Concern about possible cuts to Russian energy supplies has led to European gas and energy prices on Monday, adding to fears that the continent could slip into recession.

The regional stock index Stoxx Europe 600 closed 1 percent lower, with Germany’s DAX down 2.3 percent.

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

“I wouldn’t count on Powell giving a strong signal at Jackson Hole that he is ready to turn the tide of 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.”

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

He noted that US Treasury yields and the dollar have not been rising lately, as investors are turning to anticipating a stronger Fed policy tightening even after US inflation eased slightly in July from June.

The policy-sensitive two-year Treasury yield was trading at 3.33 percent on Monday, from about 2.5 percent in late May and less than 1 percent at the end of last year. Meanwhile, the dollar added 0.9 percent on Monday, and has risen nearly 3 percent this month against a basket of half a dozen major currencies, approaching a two-decade high hit in July.

Developed global stock markets rebounded strongly in July after a historic slump in the first half and were still high for August through Friday’s close. However, many investors questioned the durability of the recent rally given the strong economic headwinds expected for the remainder of this year and into 2023.

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“I am not buying that comfortably high. I think we will face more downsides to risk markets for the rest of the year,” said Jamie Niven, senior fund manager at Candriam.

Elsewhere, mainland China shares rebounded on Monday after the People’s Bank of China lowered its mortgage lending rate for the second time this year, in a bid to support the debt-laden property sector. The CSI 300 index of shares listed in Shanghai and Shenzhen rose 0.7 percent.

Additional reporting by Eric Platt in New York