Global stocks and government bonds fall on inflation fears

Global equities and government debt markets sold off on Monday as investors bolstered expectations of sustained high inflation leading to aggressive interest rate hikes.

Europe’s Stoxx 600 stock index fell 2.2% in morning trading, putting it on track for its fifth straight session of falls. The regional share gauge has lost 9% so far this quarter.

Futures trading implied that the US S&P 500 index would lose 2.4% in early trades in New York. The broad stock barometer also fell 2.9% on Friday to close Wall Street’s worst week since January.

Contracts that track the tech-heavy Nasdaq 100 index fell 3% as stocks of more speculative growth stocks were hit by the flight away from market risk. In cryptocurrencies, the price of bitcoin fell nearly 17% on Monday to around $24,300, nearly two-thirds below its November peak.

At its monetary policy meeting this week, the US Federal Reserve is expected to confirm its willingness to raise interest rates quickly to rein in consumer price inflation which hit a surprisingly high annual rate of 8.6% in May. .

The United States is on track to tip into recession next year, according to 70% of leading economists surveyed by the Financial Times and the University of Chicago Booth School of Business’s Initiative on Global Markets.

“The risk of recession is very high right now,” said Julian Howard, senior investment director for multi-asset solutions at fund manager GAM.

“This all looks pretty ugly in the short term and there’s really no escaping it other than going cash for now.”

In government bond markets, the yield on the two-year Treasury bill, which reflects interest rate expectations, rose 0.16 percentage points to 3.21%, the price of the debt instrument having fallen.

Money markets are tilting the Fed to raise its key interest rate to 3.4% by December, from a rate currently hovering between 0.75% and 1%.

The dollar index, which measures the world’s reserve currency against six others, rose 0.4%.

In Europe, Italian stocks and bonds came under renewed pressure after the European Central Bank paved the way last week for its first interest rate hike in more than a decade next month and potentially an extra hike. -half a point wide in September.

The yield on Italian 10-year bonds rose 0.14 percentage points to 3.98%, more than four times its level in mid-December. Shares of Italian bank Intesa Sanpaolo fell 4%, taking their two-day decline to more than 11%.

The pound fell 0.8% against the dollar to just over $1.22, pushed lower by the strengthening US currency and concerns over the UK’s economic outlook.

Economists see the Bank of England raising its main borrowing rate by 0.25 percentage points on Thursday, with an increasing likelihood of a 0.5 percentage point hike – increasing fears of stagflation driven by a crisis in the economy. cost of living combined with higher debt costs.

In Asia, the yen hit a 24-year low at ¥135.19 to the dollar, ahead of a Bank of Japan monetary policy meeting this week where it is expected to maintain ultra-loose monetary policy in a bid to support economic growth. economic growth.

A broad FTSE index of Asian stocks outside Japan fell 2.8% and the Nikkei 225 in Tokyo lost 3%.

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