Stocks hit 2-year low as central banks step up war on inflation

Stocks hit 2-year low as central banks step up war on inflation

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  • MSCI All-World hits 2-year low
  • Yen stable but traders wary of more intervention
  • Treasuries head for eighth weekly loss

LONDON/SYDNEY, Sept 23 (Reuters) – Stocks hit a two-year low on Friday and bonds suffered an eighth weekly loss as investors digested the prospect of a much more aggressive U.S. interest rate hike , while currency markets remained volatile following Japan’s intervention. to support the yen.

Interest rates have risen sharply this week in the United States, Britain, Sweden, Switzerland and Norway – among others – but this is the signal from the Federal Reserve that it expects that high US rates last until 2023 which triggered the latest sell-off.

The MSCI Global Equity Index (.MIWD00000PUS) fell to its lowest level since mid-2020 on Friday, having fallen about 12% in about a month since Fed Chairman Jerome Powell made it clear that lower inflation would hurt.

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The euro fell for a fourth straight day after data showed the slowdown in Germany’s economy worsened in September as consumers and businesses grapple with an unprecedented energy crisis and inflation spiral. Read more

European stocks were a sea of ​​red for a second day, under pressure from losses in everything from banking stocks to natural resources and tech stocks.

The pan-regional STOXX 600 (.STOXX) fell around 0.5% in early trading, while the Frankfurt DAX (.GDAXI) lost 0.6%, ranking it as one of the worst performing indices from Europe. London’s FTSE (.FTSE) fell 0.1% as the pound fell to a new 37-year low.

“Virtually everything other than inflation data and central bank policy decisions is just noise at the moment, with the market focusing firmly and almost solely on how high rates will rise on developed markets and how long they will remain at these highs,” he added. CaxtonFX chief strategist Michael Brown said.

“The message from the Fed on Wednesday was clear, that rates are going higher than market prices, and policy will remain tight for a long time to come, probably through 2023 – in this environment it is almost impossible to long on stocks, or want to buy Treasuries, so the selling of both is not a surprise and should continue.”

S&P emini futures fell 0.3%, suggesting a weaker start on Wall Street later.

With U.S. rates expected to rise faster and stay high for longer, the dollar hit a two-decade high this week, while benchmark 10-year U.S. Treasury yields soared as investors dropped inflation-sensitive assets like bonds.

The 10-year yield traded down 2 basis points on the day to 3.68%, but rose almost a quarter of a percentage point this week alone and is on track for its eighth increase consecutive weekly.

“The 10-year was catching up with the newly calibrated cash rate,” Westpac head of rates strategy Damien McColough said in Sydney.

“If you think the front end will peak at 4.60%, can you really hold 10-year bond yields at 3.70%?” he said.

“It’s a very temperamental price action…I think this volatility continues in all markets in the near term (until) the rates market stabilizes.”

The euro and the yen fell to their lowest level in 20 years on Thursday, until Japanese authorities intervened in the market for the first time since 1998 to buy the yen and stop its long slide. Read more

The yen was last stable at 142.29 to the dollar and on track for its best week in over a month, but few believe this strength will last.

Meanwhile, two-year gilt yields headed for their worst week in 13 years after the Bank of England announced an interest rate hike lower than some forex traders had hoped.

Later Friday, new Finance Minister Kwasi Kwarteng will announce a likely inflationary and even worse fiscal plan for gilts. Read more .

Gold, which earns no interest, came under pressure, particularly during this quarter, as yields rose. It was last down 0.1% on the day around $1,667 an ounce, its lowest level in two years.

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Editing by Sam Holmes and Kim Coghill

Our standards: The Thomson Reuters Trust Principles.

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