Image: Reuters Berita 24 English - On Friday, world markets finished their worst weekly decline since the pandemic meltdown of March 2020, a...
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| Image: Reuters |
Berita 24 English - On Friday, world markets finished their worst weekly decline since the pandemic meltdown of March 2020, as investors concerned that inflation-fighting central banks' stricter monetary policies would harm economic development.
The highest rate hike by the US Federal Reserve since 1994, the first such action by the Swiss in 15 years, the sixth rate hike in the UK since December, and a move by the European Central Bank to support the indebted south all roiled markets.
In a week when money costs surged around the world, the Bank of Japan was the only outlier, adhering to its objective of keeping 10-year rates near zero on Friday.
Following steep early losses, international markets stabilised and ended Friday's session with a 0.12 percent loss. The weekly drop of 5.8% was the most significant since the week of March 20, 2020.
The Dow Jones Industrial Average fell 0.13 percent, the S&P 500 gained 0.22 percent, and the Nasdaq Composite gained 1.43 percent on Wall Street.
The S&P 500 fell 5.8% for the week, the worst decrease since the third week of 2020.
"Global recovery has been disrupted by inflation, the war, and Chinese lockdowns," Bank of America economists wrote in a note to clients, adding that they anticipate a 40% probability of a recession in the United States next year if the Fed keeps hiking rates.
"We expect GDP growth to drop to near zero, inflation to settle around 3%, and the Fed to raise rates over 4%," says the report.
On Friday, the Fed stated that its commitment to fighting inflation is "unconditional." Fears that the Fed's rate hikes would cause a recession boosted Treasury prices and delayed the rise in yields, which usually fall as prices rise. After hitting an 11-year high of 3.498 percent on Tuesday, ten-year Treasury rates fell to 3.22944 percent. [US/]
Southern European bond yields plummeted after ECB President Christine Lagarde revealed further details about the bank's objectives.
"Central banks' more aggressive stance adds to headwinds for both economic growth and markets," Mark Haefele, chief investment officer at UBS Global Wealth Management, said. "The chances of a recession are increasing, and securing a gentle landing for the US economy appears to be becoming more difficult."
In Asia, selling in Australia pulled MSCI's broadest index of Asia-Pacific equities outside Japan to a five-week low. The Nikkei 225 index in Japan lost 1.8 percent, putting it on track for a weekly loss of about 7%.
DIVES IN THE JAPANESE YEN
After a wild week, bonds and currencies were uneasy.
The yen plummeted in Asia overnight after the Bank of Japan maintained its ultra-accommodative policy stance. By late Friday, the yen had dropped 2.2 percent, helping the dollar gain 0.73 percent against a basket of other currencies.
In New York, the pound sank 1% as investors focused on the rate differential between the US and the UK. The Bank of England is taking a more cautious stance than the Federal Reserve.
"If a central bank does not act quickly, yields and risk price in additional rate hikes in the future," said John Briggs, a strategist at NatWest Markets.
"Markets may just be reacting to the prospect of increased global policy rates... because global central bank policy momentum is all one direction."
Slower growth may reduce fuel consumption, therefore U.S. crude lost 6.42 percent to $110.04 per barrel, while Brent fell 5.43 percent to $113.30 per barrel. [O/R]
A stronger dollar dragged on gold, which was down 0.8 percent at $1,841.13 per ounce. [GOL/]
