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Inflation worries hold back the market as bonds, stocks widen sell-off According to Reuters

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© Reuters. FILE PHOTO: A man looks at a stock market screen in Taipei January 22, 2008. REUTERS / Nicky Loh / File Photo

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By Saikat Chatterjee

LONDON (Reuters) – Global government bonds extended their sharp sell-off on Monday and the dollar continued its march to two-decade highs as sweltering U.S. inflation stoked fears of a recession. Policy tightening is even stronger in an important week for central banks.

A market gauge that measures the spread between US two-year Treasury yields and 10-year borrowing costs reversed on Monday for the first time since April, a phenomenon that often heralds a recession. economic.

The latest sell-off in the global bond market comes after the substantially higher-than-expected US CPI on Friday hurt investors, who sold both bonds and stocks. stocks, while quelling expectations that policymakers are starting to prevail in capping price spikes.

Inflation worries investors and pushes world stocks to the brink of latest 2022 lows, as markets raise expectations for where US interest rates will peak next year to around 4% from around 4%. 3% less than two weeks ago.

Where the benchmark policy interest rate peaks in the United States and other major economies is the trillion dollar question for investors, as that determines equity valuations and central banks remaining. how far to achieve those goals.

Kenneth Broux, interest rate strategist at Societe Generale (OTC: ).

The US S&P e-mini futures showed losses for the US benchmark stock at the open, which would put the index on track to confirm a bear market that begins on Jan. 3.

European shares fell to their lowest in more than three months on Monday and the STOXX euro volatility index – a European equivalent of the US, also known as Wall Street’s fear gauge – rose to the highest level in a month.

Benchmarks in many countries including the Netherlands have fallen more than 20% from their recent closing peak.

The world stock index fell 0.8%, just near a new low in 2022.

“This is happening despite the actions taken so far by central banks … raising concerns that they will have to work harder and faster if inflation is brought under control,” he said. control, the cost is lower growth and the possibility of a recession,” said Equiti Capital macro strategist Stuart Cole.

With signs of inflation showing no signs of abating and a new wave of mass COVID-19 testing in China stoking fears of more lockdowns crippling and tightening global supply chains, investors Investors cut exposure to risky assets across the board.

Credit default swap spreads have risen to multi-year highs and cryptocurrencies including and ether have posted double-digit losses.

European bonds were also caught in a widening sell-off in debt markets following the hawkish European Central Bank meeting last week, with yields on two-year German bonds rising above 1 for the first time. % for over a decade. [GVD/EUR]

Money markets are pricing in a total of nearly 250 bps rate hikes by the US Federal Reserve later this year with just 5 meetings left. Several investment banks are up 75 basis points at a policy meeting this week.

Expectations of even stronger rate hikes from global central banks have prompted investors to increase their bearish bets on global growth. This is an important week for central banks as the Fed, Bank of England and Swiss National Bank hold policy meetings.

Many indicators of growth across markets tumbled on Monday, from technology stocks in Hong Kong to the Australian dollar, as investors fled to the safe-haven of the US dollar. .

The dollar hit a peak of 135.22 yen, its highest since October 1998, boosted by an increase in Treasury yields continuing into Tokyo trade, while the pound fell more than 1% after data showed the UK economy unexpectedly contracted in April. [GBP/]

The broader level, which measures the greenback’s value against its rivals, rose 0.4 per cent, within an impressive distance of last month’s 2003 peak.

CHINA LOCKDOWNS

The focus in Asia is on the risk of a new COVID-19 lockdown, with Beijing’s most populous Chaoyang district announcing three waves of mass testing to quell a “violent” outbreak spreading in China. a bar.

China’s blue-chips fell 1.42% and Hong Kong’s fell 3.29%. down 3.03% and Korea’s Kospi down 3.27%.

“Anyone trying to find a bottom in China’s stock and growth markets is on the premise that China is ‘one and done’ in the past,” said Jeffrey Halley, senior market analyst at OANDA. lockdown is naive,” said Jeffrey Halley, senior market analyst at OANDA.

China’s growth shares sagged, with Hong Kong-listed tech giants down 4.45%. Heavyweight Index Alibaba (NYSE:), Tencent and Meituan all fell between 4% and 6%.

The leading cryptocurrency bitcoin is down more than 11% to its lowest level since December 2020 at $23,522.

Meanwhile, prices fell, with futures down 2% at $119.20 a barrel as growth concerns dominated sentiment.

IMAGE: CPI and wage growth – https://graphics.reuters.com/USA-STOCKS/gkvlgznropb/cpiwages.png

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