London : On Tuesday, investors were worried about rapidly rising interest rates, a worsening of the war in Ukraine, and China’s decision to take more anti-pandemic measures. This made the world’s stock markets move back toward their lowest levels in almost two years.
After the Bank of England said it would start buying inflation-linked debt, the bond market in Britain got a little bit of a break.
Most European stocks fell when the market opened. MSCI’s index of Asia-Pacific stocks outside of Japan dropped almost 2% to its lowest level since early 2020. Chipmakers and China’s tech stocks were hit hard by U.S. export restrictions meant to hurt China’s tech development.
Semiconductor Manufacturing Co., which is based in Taiwan, fell more than 8%.
Traders in U.S. stock futures thought that Wall Street would open lower. And the MSCI World Stock Index was down 0.5%, moving back toward the lows from last week, which were the lowest in about two years.
Holger Schmieding, chief economist at Berenberg, said, “We are headed for a serious economic downturn, and central banks are tightening policy, which is bad for markets.”
“When will the markets start to think about other things? Still, the next two months could be hard.”
Emerging market stocks hit their lowest level since April 2020, and they are on track for their worst year since the 2008 global financial crisis, with a near-30% drop so far.
Worries about global growth were made worse by news from China that Shanghai and other big Chinese cities have increased testing for COVID-19 as the number of infections rises. As a result, some local governments have had to close schools, entertainment venues, and tourist spots quickly.
GILT RESPITE
After going up on Monday, the yields on British government bonds, called gilts, went down a little bit on Tuesday as a result of the Bank of England’s (BoE) latest efforts to stabilise the bond market.
The BoE said it would buy up to 5 billion pounds of index-linked debt every day from Tuesday until the end of the week because of a “material risk” to financial stability.
Bonds around the world have been hurt by the sell-off in gilts, which has pushed even the yields on U.S. Treasuries up sharply out of fear that pension funds will be forced to sell off their assets quickly.
After the BoE’s announcement, Treasury yields fell along with their UK counterparts, but 10-year yields were still about 7 basis points higher at around 3.95 percent.
The primary cause of the bond market crash is rising interest rates.Nerves are getting tense before Thursday’s release of U.S. inflation data, which could set the stage for the Federal Reserve to raise rates again in November.
Tai Hui, chief Asia-Pacific market strategist at J.P. Morgan Asset Management, said, “Inflation is stubborn, and the Fed needs to go above and beyond what the market is expecting.”
Futures prices show that traders think there is a 90% chance that the Fed will raise rates by 75 basis points next month and that the Fed Funds Rate will reach 4.5 percent by February and stay there for most of 2023.
Because of this, dollar bulls are getting a second chance, and the dollar is moving back toward the record highs it hit last month.
Around $0.6248, the Aussie dollar hit its lowest point in about 2 1/2 years, and $0.5536 was the lowest point for the New Zealand dollar. [FRX/]
The euro went up by 0.12% to $0.9718, and the pound recouped its losses to end the day at $1.1049.
At 145.51 per dollar, the Japanese yen was close to the level that made the government step in a couple of weeks ago.
The Japanese Finance Minister, Shunichi Suzuki, said that the U.S. showed “some understanding” about Tokyo’s intervention in the currency market last month. This was the first public signal to Japan that the U.S. supported the move.
Brent crude fell 1.61% to $94.61 a barrel. Gold on the spot market stayed at $1,668 an ounce.
1 dollar equals 0.9069 pounds
