Global stocks fell sharply this week after a trio of major central banks raised borrowing costs, heightening concerns about the health of the global economy.
A FTSE indicator of developed and emerging market shares has fallen 5.5% since the end of last week, which would mark its worst performance since the pandemic-induced turmoil of March 2020.
A rout in stocks on Thursday sent Wall Street’s S&P 500 gauge down 3.3%, a sign of an increasingly bleak market outlook as the Bank of England and Swiss National Bank followed the Federal Reserve in rising interest rates to fight against soaring inflation.
The week’s sharp overall decline came even as stocks rose on Friday, with Europe’s Stoxx 600 adding 1.1%. The regional index had lost 2.5 percent in the previous session. In the futures markets, contracts following the S&P rose 0.9%. The Iseq was ahead by 1.34% at 12 noon.
“Global silver is getting more and more expensive, and there’s still a long way to go,” said Robert Carnell, head of Asia-Pacific research at ING. “[US] Stock futures suggest a rebound as we head into the weekend. But that should probably be treated with a pinch of salt.
The moves in European trading on Friday followed a mixed session in Asia, with Japan’s benchmark Topix slipping 1.7% on Friday, while China’s CSI 300 gauge climbed 1.4%.
The Swiss National Bank surprised markets on Thursday with its first rate hike since the 2007 global financial crisis, raising borrowing costs by half a percentage point after inflation in the country hit a peak of 14 years old last month. The Bank of England joined the trend hours later with a 0.25 percentage point increase as it warned UK inflation would climb above 11% this year. A day earlier, the Fed raised rates by 0.75 percentage points in its largest since 1994.
“The more aggressive line from central banks is adding headwinds to economic growth and equities,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “The risks of a recession are growing, as a soft landing for the US economy looks increasingly difficult.”
Indicating traders’ expectations for further stock market volatility to come, the Vix – often referred to as Wall Street’s “fear gauge” – registered a reading of 32 on Friday, well above its long-term average.
In government debt markets, the yield on the benchmark 10-year US Treasury fell 0.09 percentage points to 3.21%, after swinging sharply in recent days as investors adjusted to expectations. higher interest rates and the end of the Fed’s bond buying program. which injected billions of dollars into the American economy. Bond yields fall as their prices rise.
Aggressive Fed rate hikes have also hit corporate debt markets, with investors pulling $6.6 billion out of funds buying lower-quality US high-yield bonds in the week to June 15. .
Italian bonds continued to rally after European Central Bank (ECB) President Christine Lagarde told the bloc’s finance ministers that doubting the ECB’s commitment to tackling the financial “fragmentation” of the region “would be a big mistake”.
Italian debt rebounded from a sharp selloff after the ECB said at an unscheduled meeting this week it would accelerate work on a new tool to counter soaring borrowing costs in the bloc’s weaker economies euro. Italian 10-year yields fell 0.2 percentage points to 3.56% on Friday from a high of 4.19% earlier in the week.
In currency markets, the yen weakened as much as 2% to ¥134.91 against the dollar after the Bank of Japan deviated from the aggressive tightening strategy adopted by its global peers by leaving rates directors unchanged. —Copyright The Financial Times Limited 2022