US stock markets were tilted lower at the open on Monday, and government debt yields rose as investors looked at the possibility of additional monetary policy tightening by the Federal Reserve.
Before the start of trading on Wall Street, futures that track the broad S&P 500 Index are down about 1 percent, while the Stoxx 600 Index in Europe is down 0.75 percent.
The yield on US 10-year government debt, a benchmark for global borrowing costs, rose above 3.5 percent for the first time since 2011 as investors sold bonds.
Monday’s dismal performance comes after MSCI’s broad index of developed and emerging market shares fell 4 percent last week in its biggest weekly decline since June. Concerns about the health of the global economy and the specter of further major interest rate hikes from major central banks have raised investor concerns.
“This looks like a successful week or a break. There is residual anxiety from the repricing we had last week and there is absolutely no sense that sentiment is turning into something better,” said Sammy Char, chief economist at Lombard Odier.
In currencies, the dollar rose about 0.4 percent against a basket of other currencies, extending Strong increase in recent months That was fueled by rising US interest rates. The rising dollar hit the pound, which weakened to below $1.14.
“The currency market probably best sums up how close we are to some sort of breaking point,” Shar said. The big question will be whether we will get some positive signals from central banks about when the hiking cycle will peak. . . You don’t see many paths the Fed can be reassured.”
The consensus expectation on Wall Street is that the Federal Reserve will raise interest rates by 0.75 percentage points at the end of its two-day meeting on Wednesday. Market expectations for a third consecutive rise of this magnitude were bolstered last week by data showing that US consumer price inflation slowed less than expected in August.
Pricing based on federal money futures suggests that the Fed will raise its key rate to 4.4 percent in the first months of 2023, from the current range of 2.25 to 2.5 percent as policymakers try to cool inflation.
Concerns are mounting among investors that the central bank’s efforts to tame inflation through monetary tightening will push the US economy into recession as debt servicing costs for businesses and individual borrowers soar.
The yield on US 10-year inflation-linked bonds, which indicates the returns that investors can expect to receive after accounting for inflation, was 1.159 percent, the highest since 2018. The alleged real returns were around 1 percent at the start of the year, This tempts the valuations of fast-growing technology companies, which are a heavy weight on US stock indices.
The Japanese yen fell 0.3 percent to 143 yen against the dollar after hitting a 24-year low last week before the government ramped up its verbal intervention aimed at calming the country’s currency market.
The Bank of Japan is due to make its final policy decision on Thursday. Most economists expect the Bank of Japan to commit to keeping 10-year bond yields near zero as it tries to stoke more permanent inflation in an economy that has seen decades of tepid price growth.
The Bank of England is also due to announce its interest rate decision on Thursday, with consensus expectations among City of London analysts pointing to a 0.5 percentage point rise.
Asian stocks were also lower, with the MSCI index of shares in the region dropping about 0.5 percent. Stock markets in the UK and Japan were closed for public holidays.
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