Stocks fall, dollar soars as September starts stormy

  • The dollar hits its highest level in 24 years against the yen; euro, pound sterling slide
  • The MSCI global stock index falls for the fifth day in a row
  • US S&P 500 rallies to end higher, Europe down more than 1%, Nikkei down 1.5%
  • Industrial metals suffer heavy falls
  • US yields rise, oil prices fall

NEW YORK, Sept 1 (Reuters) – September got off to a stormy note on Thursday as lingering worries about rising global interest rates and recessions weighed on stocks, bonds and world prices. oil, and pushed the US dollar to a 24-year high against the yen.

Indeed, data released early Thursday that showed U.S. manufacturing grew steadily in August as employment and new orders rebounded did not go down well with investors, who feared an economy strong does strengthen the case for the Federal Reserve to continue raising interest rates over the next few months. . Read more

Investors fear that the continued tightening of monetary policy by central banks in the United States and Europe could scupper the two regional economies and trigger a recession.

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“U.S. data this week suggests the Fed still has a lot of work to do to reduce demand enough to bring inflation down,” analysts at ANZ Bank said in a note to clients.

All eyes are now on August US nonfarm payrolls data, due Friday. Analysts expect 285,000 jobs to have been added last month, while unemployment hovered at 3.5%. Investors might not like a strong number if it supports the basis for continued aggressive rate hikes, which could further boost the US dollar.

After falling more than one percent earlier in the day, US stocks reversed late in the session to post modest gains. The US S&P 500 Index (.SPX) climbed 0.3%, the Dow Jones Industrial Average (.DJI) rose 0.5%, while the Nasdaq Composite (.IXIC) ended down 0 .3%.

Europe’s STOXX 600-company stock index (.STOXX) slid 1.8% and MSCI’s main global equity index (.MIWD00000PUS) fell 0.8% to its lowest since mid- July, as European government bond markets saw more selling after their worst month. rout in decades. Read more

The bearish trend was fueled by the possibility that the European Central Bank will raise its key rate by a record 75 basis points next week, following Wednesday’s record inflation reading. Read more

The intensive bombardments of the giant Ukrainian nuclear power plant in Zaporizhzhia also shook the nerves. Russia had shut down its main gas pipe to Europe for maintenance, Washington ordered Nvidia Corp to stop selling high-tech chips to China, while veteran investor Jeremy Grantham put warns of an “epic finale” to the stock market “superbubble” inflated by years of cheap money.

“The whole world is now obsessed with the growth implications of inflation, rates and wartime issues such as energy shortages,” Grantham said.

Add to that COVID-19 in China, food and fuel crises, demographics and climate change and “the outlook is much bleaker than one would have expected”, he added.

The dive for safety saw the dollar hit a fresh 24-year high at 140.21 yen in currency markets as investors braced for higher US rates, while expecting Japanese rates grounded aren’t going anywhere anytime soon.

The euro fell 1% against the dollar rising to $0.99435, the pound fell 0.7% to $1.15385, while the risk-sensitive Australian and New Zealand dollars fell to their lowest levels since July.

Hawkish expectations from the Fed saw Treasury yields hit new highs. The two-year benchmark bond yield jumped to 3.5510% to the highest since late 2007, while the 10-year bond yield hit a high of 3.2970%.

Bets on an exceptional decision by the ECB next week were also gaining ground. Eurozone money markets were now pricing in around an 80% chance of an unprecedented 75 basis point hike, down from 50% earlier in the week.

Benchmark yields on the German Bund, which are a key driver of borrowing costs, rose above 1.63% before falling to 1.57%. The Italian 10-year bond yield hit its highest since mid-June at 4% at one point, and the closely watched spread between German and Italian bond yields widened to its highest level since late July. .

“The ECB’s Sept. 8 meeting is still close, but this latest data will likely be enough to tip even centrist members to a 75 basis point hike,” analysts at Mizuho said.

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Overnight, Cleveland Fed President Loretta Mester said the US central bank is expected to raise interest rates to just above 4% by early next year and hold at this level to bring inflation back to the Fed’s target. She also warned that the risks of a recession over the next two years had increased. Read more

Rating agencies have also issued warnings. Moody’s cut its forecast for the world’s top 20 economies to 2.5% growth from 3.1%, while Fitch acknowledged that the euro zone was now poised for recession.

“A complete shutdown of the Russian gas pipeline to the EU looks increasingly like a reasonable assumption,” said Brian Coulton of Fitch, adding that the hit to growth already seen meant a recession was clearly beginning.

Asian stocks slid overnight, and investors there also sold everything risky and unidentified.

Japan’s Nikkei (.N225) slipped 1.5% and Hong Kong’s Hang Seng Index (.HSI) fell 1.8%, while Chinese blue chips (.CSI300) ended lower. 0.9%, after being anchored earlier in the session by hopes of greater economic stimulus from Beijing.

On Thursday, regional purchasing managers’ indices for South Korea, Japan and China all pointed to slowing global economic activity, rising interest rates, high inflation, war in Ukraine and COVID restrictions in China having taken their toll. Read more

“August was a terrible month for balanced fund investors with no diversification gains from holding a portfolio of stocks and bonds,” said Rodrigo Catril, senior FX strategist at National Australia. Bank, in a note to clients.

“The end of the month holds no surprises, but rather an extension of the main themes seen in August with further increases in core global bond yields and weaker equities.”

In major commodity markets, Brent fell 3.9% to $91.95 a barrel as reports of new COVID-19 lockdown measures in China added to concerns over slowing demand. . U.S. crude fell 3.7% to $86.27 a barrel, although gas prices in Europe provided some relief, falling 4% as markets grew accustomed to reduced supply of Russia.

Gold fell 0.9% to $1,695.0219 an ounce, but industrial metals all took a hit with tin down 8%, zinc down 5.3% and copper down 1.75%.

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Additional reporting by Reporting by Stella Qiu in Sydney; Editing by Kirsten Donovan and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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