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Dollar surges and stocks tumble as traders weigh global growth outlook

The dollar soared and government bonds rose on Monday as stock markets plummeted as traders weighed in on the prospect of further aggressive US interest rate rises and increased risk of recession in Europe.

The dollar, which tracks the U.S. currency against six others and has a large euro weight, rose 1.2 percent to a new 20-year high. This rise has helped push the euro closer to equality with the Greens, as Europe’s single currency fell 1.5 percent to $ 1.0032 – approaching a level It has not been seen for almost two decades.

The Japanese yen also fell to a new 24-year low against the dollar of ¥ 137.75 before strengthening slightly.

Market sentiment in recent weeks has ranged from the recognition that central banks need to aggressively raise interest rates to combat rising inflation and the fear that excessive monetary tightening could lead to a global economic slowdown.

Both narratives have strengthened investor sentiment against the dollar, especially as the risks of recession are perceived to be higher in Europe. The European Central Bank has followed the US Federal Reserve to tighten monetary policy, but it is expected to remain as many ions as possible to deal with economic shocks from Russia’s invasion of Ukraine.

“We expect an earlier recession in Europe,” said Sonia Laud, chief investment officer at Legal & General Investment Management. “The US is an energy exporter, Europe is an importer, and in the current energy price environment it makes all the difference.”

Unexpectedly follows Strong job data For June, analysts expect the Fed to raise interest rates by up to 0.75 percentage points at its July meeting to tame inflationFollowing a similar move last month.

However, investors have lowered expectations about the extent to which the US Federal Reserve will raise lending costs later this year, with futures markets now priced at a benchmark rate of 3.5% for early 2023 – down from expectations of 3.9% in mid-June. The Fed is 1.5-1.75%.

Expectations of how much the ECB will raise lending costs have also fallen in recent weeks, with markets priced at just over 1% by February, from the current level of minus 0.5%.

The Bank of Japan, meanwhile, has defied the global trend of tighter monetary policy. On Monday, the central bank governor, Haruhiko Kuroda, warned of “very high uncertainty” for the local economy, as a strong signal that the central bank will maintain its position of relief.

Government bond markets rose on Monday as the 10-year yield on the U.S. Treasury bill fell 0.12 percentage points to 2.98%. The two-year yield felt for the policy fell by 0.06 percentage points to 3.06 percent, and remained higher than a long-term equivalent in the “reversal” scenario that preceded any U.S. recession in the past 50 years. Bond yields fall as their prices rise.

Germany’s 10-year yield fell by 0.09 percentage points to 1.19%.

In stock markets, the Wall Street S&P 500, which rose last week following the worst first half of the year in more than five decades, fell 1.2 percent. The high-tech Nasdaq Composite was down 2.3%.

The European Stoxx 600 index closed down 0.5%, then Sharp falls in China Driven by new Covid-19 restrictions.

Hong Kong’s Hong Kong stock index fell 2.8% and mainland China’s CSI 300 fell 1.7% after gates across China re-imposed corona restrictions to combat the most contagious BA.5 Omicron sub-variance.

Dollar surges and stocks tumble as traders weigh global growth outlook Source link Dollar surges and stocks tumble as traders weigh global growth outlook

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