Global stocks rebound to 2-year lows as mood sours

LONDON — Global stocks slid back to near two-year lows on Tuesday as sentiment weighed down by unease over rapidly rising interest rates, an escalating war in Ukraine and China stepping up measures pandemic.

There was a modest respite for Britain’s troubled bond market after the Bank of England announced it would start buying inflation-linked debt.

European stocks opened broadly lower. The MSCI Asia-Pacific ex-Japan equity index fell nearly 2% to its lowest since the start of 2020 as chipmakers and Chinese tech stocks were hit hard by U.S. export curbs aimed at harm Chinese technological development.

Taiwan’s Semiconductor Manufacturing Co, for example, fell more than 8%.

Wall Street is expected to open lower, judging by trading in US stock futures. And the MSCI global stock index fell 0.5%, returning to lows around two years hit last week.

“We are heading into a severe economic downturn and central banks are tightening policy, which is a bad combination for markets,” Berenberg chief economist Holger Schmieding said. “When do the markets start looking beyond that? The next two months could still be tough.

Emerging market stocks have hit their lowest level since April 2020 and are on track for a nearly 30% year-to-date fall, its worst year since the 2008 global financial crisis.

Worries over global growth have been heightened by news from China that Shanghai and other major Chinese cities have stepped up testing for COVID-19 as infections rise, with some local authorities hastily shutting down schools, entertainment venues and tourist sites.

golden respite

Yields on UK government bonds or gilts fell slightly, after surging on Monday, following the BoE’s latest efforts to shore up the struggling bond market.

Citing a “significant risk” to financial stability, the BoE said it would buy up to £5bn of indexed debt per day from Tuesday until the end of the week.

Bonds globally were swept away by the gilt rout, even pushing US Treasury yields higher on fears that pension funds could be forced to sell burning assets.

Treasury yields fell with their UK counterparts after the BoE announcement, but 10-year yields were still up around 7 basis points to around 3.95%.

The bond market rout is set against the backdrop of ever-higher interest rates. Nerves are fraying ahead of Thursday’s release of U.S. inflation data, which could pave the way for another big Federal Reserve hike in November.

“Inflation is stubborn and the Fed needs to go above and beyond, beyond what the market expects,” said Tai Hui, chief Asia-Pacific market strategist at JP Morgan Asset Management.

Futures prices show traders are positioned for around a 90% chance of a 75 basis point Fed hike next month and for the fed funds rate to hit 4.5% by February and there. remains most of 2023.

This outlook gives the dollar bulls another run and sends the greenback drifting back to the highs it hit last month.

The Australian dollar fell to a 2.5-year low of around $0.6248 and the Kiwi dollar hit a low of $0.5536.

The euro edged up 0.12% to $0.9718 and the pound recovered ground to trade at $1.1049.

The Japanese yen, at 145.51 to the dollar, was in sight of the level that garnered official support a few weeks ago.

Japanese Finance Minister Shunichi Suzuki said the United States had shown understanding to “some degree” of Tokyo’s intervention in the currency market last month, giving Japan’s first public indication of the American support for this decision.

Brent fell 1.61% to $94.61 a barrel. Spot gold was flat at $1,668 an ounce.

($1 = 0.9069 pounds)

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