Global stocks fall on inflation and growth fears
Markets across the world fell on Monday, widening their losses from last week, due to higher-than-expected inflation and lower-than-expected economic growth raising the outlook for interest rates and corporate profits. Wall Street futures pointed to another sharp drop at the trading open, as the wave of selling continued.
Stock markets in Asia closed in the deep red, with Japan’s benchmark Nikkei 225 index down 3 per cent and South Korea’s Kospi down 3.5 per cent. In Hong Kong, shares fell 3.4 percent, while an index for China’s largest companies listed in Hong Kong fell 3.6 percent. The Japanese yen fell to a 24-year low against the US dollar.
Fear grew in the region on Monday after authorities in Beijing and Shanghai reimposed social distancing measures after another round of mass testing over the weekend. China’s economic growth has been hit by the country’s “zero COVID” pandemic policy, which earlier this year forced most parts of the country into some form of shutdown for months.
In Europe, the Stoxx 600 index was down 2.2 percent in early trade, hitting its lowest level since early 2021. Britain’s FTSE 100 fell 1.8 percent in April after news of the country’s economy unexpectedly shrinking, down 0.3 percent from March. Economists had expected a modest pick-up in growth.
European bond prices fell sharply, as traders increased the price of a range of interest rates by the European Central Bank as it reacted to high inflation in the eurozone. Yields on German and Italian government bonds, which move inversely to prices, reached several-year highs, meaning that borrowing costs have risen sharply.
Wall Street was poised for another sell-off on Monday, with futures signaling that shares posted a fourth straight fall. Premarket trading suggested the S&P 500 would open 2.2 percent lower, moving it into bear market territory, defined as a 20 percent decline from its recent peak. The index fell below that level last month, indicating a significant change in market sentiment, before closing just above it.
Analysts at ING wrote in a note to investors Monday morning that the benchmark US stock index is now “within one bad day of a bear market, and equity futures suggest we have yet to express all negative sentiment.” “
A report on Friday showed a rise in inflation in the United States, which sent a flurry of markets, as investors worried that the Federal Reserve might have to raise interest rates higher and faster to rein in rising prices, A move that could affect the US economy. In anticipation of these rate hikes, and the effect they may have on economic growth, yields on short-term government bonds have risen faster than yields on long-term, meaning the so-called yield curve is closer to “inverted”, a Signal that often accompanies the bearish.
Cryptocurrencies, which some believe can act as a haven in times of inflation and turmoil, have also been hit hard. Bitcoin, the largest cryptocurrency, fell to an 18-month low of nearly $24,000. So far this year, its price has almost halved. According to Coinmarketcap, the value of all cryptocurrencies fell below $1 trillion for the first time since the beginning of 2021, which is nearly $2 trillion less than its peak.
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