On Thursday, investors started pedalling into another cycle of selling as the dollar tightened its grip on the exchange rates, recession fears weighed on stocks, and bonds continued to feel the agony of rising interest rates.
The beginning of Europe was harsh. The STOXX 600 share index (.STOXX) fell by almost 2% from the opening, while the euro and the pound, which have been badly hit by UK debt worries in recent days, also fell by 1%.
Markets for government bonds prepared for German data that was anticipated to show the country’s consumer prices rising at their quickest rate since the 1950s.
A day after Bank of England dramatically interfered in the UK market to try and calm the storm over the government’s spending plans, the sale of gilts also resumed.
According to Agnes Belaisch, chief European strategist at the Barings Investment Institute, the market could need some stability as it has become somewhat unpredictable.
While central banks across the world are focusing on how high they are willing to raise interest rates, she claimed that investors were now observing “incoherence” in the UK’s government expenditure as the BoE attempts to control inflation.
German ten-year government bond yield, which serves as the benchmark for the euro zone, increased to 2.27% as North Rhine-rapid Westphalia’s economic growth predicted later double-digit inflation for the entire nation.
Due to the BoE’s unexpected intervention the day before, the UK 10-year bond yield, which determines UK borrowing rates, fell by almost 50 bps and increased 15 basis points (bps) to 4.16%.
UK Prime Minister Liz Truss justified her new economic plan, which this week pushed the pound to a record low and sent the UK’s borrowing prices close to those of Greece, saying it was created to address the challenging circumstances in which Britain now finds itself.
Zooming back out, the topic remained on the dollar, which has decimated currencies worldwide this year.
Charles Evans, a seasoned member of the Federal Reserve’s policymaking committee, made no mention of any of the recent drama when speaking with media in London on Wednesday.
Evans supported raising the Fed’s rates, which are currently at a level of 3%-3.25%, to a spectrum of 4.5%-4.75% by the conclusion of the year or in March.
Following its worst day in two and a half years on Wednesday, the U.S. dollar index, which compares the dollar to the pound, the euro, and four other currencies, rose back toward its recent 20-year high on Thursday.
China’s yuan dropped overnight but only slightly above recent post-financial disaster lows as the central bank of China said that stabilising the market for foreign exchange was its top goal.
Although Japan’s Nikkei (.N225) managed to increase by about 1%, MSCI’s broadest index of Asia-Pacific shares outside of Japan (.MIAPJ0000PUS) closed the day almost flat. With other Fed policymakers scheduled to speak, S&P 500 futures indicated that Wall Street might decline by more than 1.2% later.
The strong dollar restrained oil demand and market sentiment was clouded by worries about the deteriorating global economic outlook, which led to oil prices falling once more after rising by more than $3 the previous session.
In comparison to U.S. crude futures, which fell by 80 cents, or 1%, to $81.33, and gold, which fell by 1% to $1,642 an ounce, Brent crude futures decreased by 91 cents, or 1%, to about $88.41 per barrel.
This week, Goldman Sachs lowered its projection for oil prices through 2023, citing prospects of lower demand and a firmer dollar, but said that concerns over global supply confirmed its long-term belief that prices may climb once more.
ANZ economist Finn Robinson concluded the scenario by commenting that everything is a bit of a disaster.