Stocks eye biggest drop since 2020 as central bankers disrupt markets

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  • BOJ an outlier as major central banks hike rates
  • Investors’ fears of recession grow
  • Lagarde’s comments calm eurozone debt markets

NEW YORK, June 17 (Reuters) – Global stocks tumbled on Friday to near their worst week since markets collapsed due to the pandemic in March 2020, as major central banks tightened policy in the goal of controlling inflation, which made investors nervous about the economic future. growth.

The biggest US rate hike since 1994, the first Swiss move in 15 years, a fifth UK rate hike since December and a decision by the European Central Bank to support the indebted south followed each other in choppy markets.

The Bank of Japan was the only outlier in a week that silver prices rose globally, sticking to its strategy of pinning 10-year yields near zero on Friday. Read more

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After a week of hard-hitting moves across all asset classes, global equities (.MIWD00000PUS) fell 0.7% on Friday to take weekly losses to over 6% and leave the index on course for recovery. biggest weekly percentage drop in more than two years.

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

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

“Our worst fears around the Fed have been confirmed: they have fallen well behind the curve and are now playing a dangerous game of catch-up. We expect GDP growth to slow to near zero, inflation to hover around 3 % and the Fed raise rates above 4%.”

Fears that the Fed’s policy tightening could trigger a recession slowed the rise in US yields and supported Treasury prices. Yields fall when prices rise. Ten-year Treasury yields fell to 3.2124% from 3.305%.

Southern European bond yields fell sharply on Friday after more detailed reports from ECB President Christine Lagarde on her plans to develop a yield support tool.

“The more aggressive line from central banks is adding headwinds to both economic growth and equities,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “The risks of a recession are growing, while achieving a soft landing for the US economy looks increasingly difficult.”

In Asia, MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell to a five-week low, led by selling in Australia. The Japanese Nikkei (.N225) fell 1.8% and headed for a weekly decline of almost 7%.

jitters

Bonds and currencies were jittery after a rollercoaster week.

Overnight in Asia, the yen tumbled after the Bank of Japan resisted a wave of policy tightening and stuck to its ultra-dovish policy stance. The yen fell 2.2% in late morning New York, and the lower yen supported the US dollar, which rose 0.9% against a basket of major currencies.

The pound fell 1.2% on Friday in New York as investors focused on the spread between US and UK rates, the former being helped by the Fed’s ongoing aggressive stance, while the Bank of England opts for a more moderate approach.

“If a central bank doesn’t act aggressively, yields and the price of risk will translate more into rate hikes,” said NatWest Markets strategist John Briggs.

“Markets may simply permanently adjust to a prospect of higher global policy rates…because the policy momentum of global central banks is one-sided.”

Growth fears weighed on oil prices. U.S. crude recently fell 6.56% to $109.88 a barrel and Brent to $113.18, down 5.53% on the day.

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

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Editing by Lincoln Feast, Angus MacSwan and David Evans

Our standards: The Thomson Reuters Trust Principles.

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