Global stocks slide in the face of interest rate reality -
Global stocks

Global stocks slide in the face of interest rate reality

Recent data has shown that global stocks have weakened while Treasury yields increased earlier this week following a stark warning from central bankers. Officials from the US Federal Reserve and the European Central Bank made speeches last week warning investors that a sustained period of higher interest rates lies ahead.

At their annual meeting last week in Wyoming, US Fed officials again affirmed their commitment to bringing soaring inflation down, something they are determined to do despite the risk of a significant recession.

Sharp decline after Fed chairman’s speech

The Wall Street S&P 500 stock index extended its losses when it declined by 0.7% at the start of this week following a talk from the Fed chairman, Jay Powell, at the end of last week. There was also a drop of 1% with the tech-based Nasdaq composite.

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stock index

In addition, there was a steeper slide in US Treasury prices on Monday following the speech from Powell. According to data, the yield on the two-year note came in at 3.48%, its highest level since 2007. It then fell to 3.43%, which equated to an increase of 0.03% for the day. There was also an increase of 0.07% on the benchmark 10-year Treasury yield, which rose to 3.11%.

Powell’s speech took its toll on Wall Street’s Vix volatility index, which is known as the ‘fear gauge’ and measures expected movements in US stocks. The index increased to as high as 27.7%, which was its highest since the middle of July.

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Mansoor Mohi-uddin, the chief economist at the Bank of Singapore, said: “Officials remain strongly committed to returning inflation to the central bank’s 2 percent target. We think the chances of a 0.75 percentage point move next month have risen and will watch August’s US payrolls and consumer inflation data closely.”

stock index

Inflation in the United States is now at its highest level in four decades, and the economy has shrunk for two consecutive quarters. Despite this, the US does not yet class itself as being in a recession, although it would mark a recession in some other countries.

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In addition to Powell’s warning last week, there were similar speeches from several European policymakers. They also warned of extended tighter monetary policy in the eurozone.

On Monday, figures showed that the continent’s leading stock indices fell but recovered to a degree from the lows seen earlier. Nevertheless, there was a fall of 0.8% with the benchmark Euro Stoxx 600 and a 0.6% drop in Germany’s Dax. The Cac in Paris was also down by 0.8%, but there was no data for the UK due to London being closed for the Bank Holiday.