HomeBusinessWeek of rate hikes put stocks on track for biggest drop since...

Week of rate hikes put stocks on track for biggest drop since 2020

  • Everyone but the BOJ is hiking
  • Stocks fall as economic risks rise
  • Yen slips as BOJ leaves policy unchanged

SINGAPORE, June 17 (Reuters) – Global stocks are heading for their worst week since markets collapsed in March 2020, as interest rate hikes in the United States and Britain and a surprise rise in Switzerland are alerting investors to future economic growth.

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

The yen fell more than 1% to 133.88 to the dollar in volatile trading. US futures tried to rebound and Chinese stocks gained, but that was compared to a week of losses and worries that rate hikes would stifle growth for years.

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MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell to a five-week low, led by selling in Australia where the ASX 200 (.AXJO) fell 1.8 %. The Japanese Nikkei (.N225) fell 1.7% and headed for a weekly decline of nearly 7%.

S&P 500 futures rose 0.8% and Nasdaq 100 futures rose 1%, but they are well under water this week.

EuroSTOXX 50 futures rose 1% and FTSE futures rose 0.5%.

“We are entering a difficult phase of regime change, as risks to economic growth add to the already hot inflationary backdrop,” said Vincent Mortier, chief investment officer at Europe’s largest fund manager, Amundi.

“The current revaluation removes most of the overvaluation from the market, but current levels are vulnerable to any deterioration in company fundamentals.”

Global stocks (.MIWD00000PUS) are down 5.7% for the week so far, on track for the biggest weekly percentage decline in more than two years.

ONE WAY

Bonds and currencies were jittery after a rollercoaster week. Over the past few sessions, the dollar has retreated from a 20-year high, but it hasn’t fallen much and should end the week on a stable note.

The jump in the Swiss franc has provided an additional drag this week as it is used as a funding currency and often traded for dollars before they are swapped for high-yield securities – meaning dollars are sold when this trade is reversed.

The greenback was firm on Friday and excluding the rising yen, it was up around 0.3% to $1.0518 against the euro and around 0.5% to $0.7012 against the Aussie.

“The path of least resistance is down in stocks and up in the dollar,” said Brent Donnelly of Spectra Markets. “The Fed doesn’t know where inflation is going, and neither do we.”

Along with the Fed and the Swiss central bank, the Bank of England announced a 25 basis point rate hike this week. It was smaller than expected but prompted the gilts to sell off and the pound to rise on bets that future bulls would come in droves and quickly. Read more

“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.”

The pound rose 1.4% on Thursday and maintained its gains through Friday as it heads into a flat week. Two-year gilts rose 18 basis points on Thursday to 2.143%.

U.S. jobs and housing data were weak on Thursday, on the heels of disappointing retail sales figures as concerns dragged down the dollar and helped Treasuries. Read more

Benchmark 10-year Treasury yields fell nearly 10 basis points overnight, but climbed to 3.2313% during the Asian morning. Yields rise when prices fall.

Growth fears sent oil down briefly before prices stabilized. Brent futures were last at $119.70 a barrel. Gold was held at $1,844 an ounce and bitcoin was kept under pressure at $20,700.

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Reporting by Tom Westbrook; Edition by Lincoln Feast.

Our standards: The Thomson Reuters Trust Principles.

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