Global stocks are falling as concerns about rising rates clash with concerns about growth

Global stocks were hit by a new blow to sales on Monday as central banks were rapidly curbing stimulus measures from a time of crisis and investors worried about signs of a slowdown in major world economies.

The S&P 500 Wall Street index fell 1.5 percent in early stores, the technology-focused Nasdaq Composite fell 1.8 percent, and negative market sentiment dealt the hardest blows to the most speculative assets, such as technology stocks and cryptocurrencies.

The European regional index Stoxx 600 fell 1.9 percent, Bitcoin touched its lowest point since last July, and the index of technology stocks listed on the S&P 500 fell 1.4 percent.

Monday’s withdrawal comes as investors struggle with rising interest rates from the US Federal Reserve, intense inflation and new signs of tensions in the global economy.

“It’s hard to say if everything is low enough and bearish enough,” said Joost van Leenders, a stock strategist at Kempen Capital Management, adding that investors no longer expect the US Federal Reserve to prioritize financial market stabilization, as it has done. during the onset of a coronavirus pandemic.

“WITH [bond] yields are rising and stock markets are falling, you have tighter financial conditions, which the Fed wants. ”

The Fed raised its key interest rate by 0.5 percentage points last week, signaling even bigger increases on the horizon as it seeks to cool rising inflation caused by pandemic-related supply chain problems as well as higher food and energy costs.

“No one knows for sure if that’s enough to curb future inflation,” said Nicholas Colas, co-founder of DataTrek Research. “Hence all the recent market volatility.” Economists expect data released on Wednesday to show that consumer prices in the U.S. jumped 8.1 percent in April compared to the same month last year.

Sustainable inflation causes a significant drop in government bond prices, in turn increasing their income, which reduces investors’ appetite for riskier assets and increases the cost of corporate borrowing.

Yields on 10-year U.S. Treasury bonds rose above 3.2 percent on Monday before returning to 3.14 percent, still close to the highest level since the end of 2018.

The 10-year real yield in the U.S., which provides an overview of the long-term returns that investors can earn after inflation on ultra-low-risk securities, jumped 0.09 percentage points to 0.35 percent on Monday after starting the year around minus 1 cent.

A line chart of yields on ten-year inflation-protected securities (%) showing real U.S. yields rising

Concerns about rising rates have been heightened by indications that growth in the world’s major economies could slow. Growth in Chinese exports fell to a two-year low last month, according to data released on Monday, following last week’s reports of a slowdown in the German and French manufacturing sectors.

The MSCI All-World global stock barometer has fallen nearly 15 percent this year. On Friday, U.S. stock markets closed their longest series of weekly losses in more than a decade.

Meanwhile, the measure of the cost of protection against default on European corporate bonds rose to its highest level since 2020 on Monday. at 49bp at the beginning of the year.

ITraxx Europe line chart (range, basis points) showing investor concerns about the European corporate bond market

In terms of commodities, Brent’s international crude oil fell more than 2 percent to below $ 110 a barrel, raising concerns about weaker demand.

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