© Reuters. FILE PHOTO: An investor sits in front of a board with stock information in a brokerage office in Beijing, China, December 7, 2018. REUTERS / Thomas Peter / File Photo
From Ritvik Carvalho
LONDON (Reuters) – Global stocks fell to four-week lows on Monday after the Fed’s surprising restrictive shift last week reduced the appeal of riskier assets while the dollar made gains near a 10-week high .
European stocks opened lower, but the pan-European index made up early losses and traded flat that day, helped by gains in German and Italian stocks.
100 was down 0.05%, 40 fell 0.3% and Spain’s fell 0.6%.
MSCI’s All Country World Index, which tracks stocks from 49 countries, lost 0.3% to its lowest level since May 24th.
Benchmark US 10-year Treasury bond yields fell 1.3540%, their lowest level since February 24, while 30-year bond yields fell to 1.9290% for the first time since February 11.
The yield curve – measured by the spread between two- and 30-year yields – was the flattest since late January as investors pushed interest rate hike expectations forward while lowering longer-term prospects for growth and inflation.
The US dollar hovered near the 10-week high it hit on Friday versus other major competitors after its largest weekly surge in more than a year.
“Last week’s dollar rally is a combination of expectations and positioning (dollars sold), a concern that the Fed is ‘behind the curve’ (and therefore needs to do more and earlier than expected) and that equity markets have started Losing ground strengthened the dollar as its most defensive currency, “said Filip Carlsson, junior quantitative strategist at SEB. “We still see this as a correction rather than the start of a new trend.”
The stocks of banks, energy companies and other companies, which tend to react to economic fluctuations, fell sharply after Wednesday’s Fed meeting when the central bank surprised investors by expecting two quarter-percentage point rate hikes in 2023.
St. Louis Fed President James Bullard further fueled the sell-off on Friday by saying the shift to tightening monetary policy faster was a “natural” response to economic growth, and particularly inflation, which is moving faster than expected moves when the country reopens after the coronavirus pandemic.
“The Fed’s pivot point, starting the tightening discussion, was the most surprised, but we believe markets began to neglect this inevitable process months ago.” Morgan Stanley (NYSE 🙂 Analysts wrote in a report.
“That is exactly what the mid-cycle transition is all about and fits well with our narrative of troubled equity markets and a 10-20% correction for the broader indices this year.”
Previously, Asia was down 3.6%, falling below 28,000 for the first time in a month, while MSCI’s broadest index for Asia-Pacific stocks outside of Japan fell 1.4%. Chinese blue chips lost 0.7%.
US stock futures showed gains as Wall Street reopened, up 0.2% after falling 1.3% on Friday. Nasdaq futures rose 0.3%. ()
Several Fed officials have speaking duties this week, including Chairman Jerome Powell, who testified in front of Congress Tuesday.
The President of the European Central Bank, Christine Lagarde, speaks in front of the European Parliament on Monday.
The euro was trading at $ 1.1887 on Monday, near its lowest level since April 6, and fell from as low as $ 1.21457 last Tuesday.
The pound sterling rebounded somewhat, trading 0.3% higher at $ 1.3836 after hitting its lowest level since April 16 on Friday. [GBP/]
Commodity-linked currencies have also suffered, with the Australian dollar hovering above a six-month low at $ 0.7495.
A stronger greenback has also put pressure on cryptocurrencies, with Bitcoin falling 4.2% to around $ 34,112 while smaller rival Ether lost 5.7% to around $ 2,115.
In commodities, gold rebounded 1.1% to $ 1,782.90 an ounce on Monday, targeting a six-day losing streak, but still remained near its lowest level since early May.
The three-month period on the London Metal Exchange fell to its lowest level since April 15, after falling 8.6% last week, the largest weekly decline since March 2020.
rose by a second day, supported by strong demand during the summer driving season and a pause in talks on the revival of the Iranian nuclear deal, which may indicate a delay in resumption of supplies by the OPEC producer.
Futures rose 0.2% to $ 73.64 a barrel, while U.S. crude West Texas Intermediate (WTI) rose 0.3% to $ 71.83 a barrel.